Demand Expansion and Cannibalization Effects From Retail Store Entry: A Structural Analysis of Multi-Channel Demand

48 Pages Posted: 30 Apr 2015 Last revised: 3 Jul 2022

See all articles by Scott Shriver

Scott Shriver

University of Colorado at Boulder - Department of Marketing

Bryan Bollinger

New York University (NYU) - Department of Marketing

Date Written: October 1, 2021

Abstract

In this paper, we investigate the demand response of a firm’s existing customers to retail store entry and which aspects of the response are demand-expanding and which cannibalize online sales. The empirical goal of the paper is to separately identify the effects of customer-to-store distance on purchase frequency, channel choice and expenditure per purchase, using transaction-level data from a multi-channel apparel brand. Our identification strategy exploits within-customer variation in distance resulting from store entry, during a period of rapid retail expansion. We establish retail distance effects using descriptive regressions before developing a unified structural model that affords rich counterfactual analyses and further controls for product category preferences. We find material effects of decreasing retail store distance on purchase frequency and retail channel choice, but not expenditures per purchase. Our structural model ascribes mechanisms to these effects in the form of increased brand consideration, higher retail utility from non-monetary factors (e.g. reduced driving times), and infungibility of monetary transportation costs with budgets for apparel. Our estimates imply a 10% reduction in retail store distance increases retail channel expenditures by 1.9% and decreases online channel expenditures by 1.2%, resulting in a 0.4% increase in total expenditures. Through counterfactual experiments, we demonstrate that retail expansion can ultimately limit the ability of the firm to price discriminate across channels, since reducing transportation costs weakens the firm’s ability to enforce channel-based segmentation schemes.

Keywords: Channels of distribution, pricing, discrete-continuous models, market entry

Suggested Citation

Shriver, Scott and Bollinger, Bryan, Demand Expansion and Cannibalization Effects From Retail Store Entry: A Structural Analysis of Multi-Channel Demand (October 1, 2021). Available at SSRN: https://ssrn.com/abstract=2600917 or http://dx.doi.org/10.2139/ssrn.2600917

Scott Shriver (Contact Author)

University of Colorado at Boulder - Department of Marketing ( email )

995 Regent Dr
Boulder, CO 80309
United States

HOME PAGE: http://https://www.colorado.edu/business/scott-shriver

Bryan Bollinger

New York University (NYU) - Department of Marketing ( email )

40 W 4th St
Tisch 804
New York, NY 10012
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
399
Abstract Views
2,015
rank
106,035
PlumX Metrics