Omnichannel Retail Operations with Buy-Online-and-Pickup-in-Store

Forthcoming, Management Science

55 Pages Posted: 26 Jan 2016 Last revised: 15 Mar 2017

See all articles by Fei Gao

Fei Gao

Indiana University Bloomington

Xuanming Su

University of Pennsylvania - Operations & Information Management Department

Date Written: January 18, 2016

Abstract

Many retailers have recently started to offer customers the option to buy online and pick up in store (BOPS). We study the impact of the BOPS initiative on store operations. We build a stylized model where a retailer operates both online and offline channels. Consumers strategically make channel choices. The BOPS option affects consumer choice in two ways: by providing real-time information about inventory availability and by reducing the hassle cost of shopping. We obtain three findings. First, not all products are well-suited for in-store pickup; specifically, it may not be profitable to implement BOPS on products that sell well in stores. Second, BOPS enables retailers to reach new customers, but for existing customers, the shift from online fulfillment to store fulfillment may decrease profit margins when the latter is less cost effective. Finally, in a decentralized retail system where store and online channels are managed separately, BOPS revenue can be shared across channels to alleviate incentive conflicts; it is rarely efficient to allocate all the revenue to a single channel.

Keywords: retail operations, omnichannel, strategic consumer behavior, decentralization

Suggested Citation

Gao, Fei and Su, Xuanming, Omnichannel Retail Operations with Buy-Online-and-Pickup-in-Store (January 18, 2016). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=2721474

Fei Gao (Contact Author)

Indiana University Bloomington ( email )

1309 E 10th St
Bloomington, IN 47405
United States

Xuanming Su

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

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