The Impact of Mobile App Failures on Online and Offline Purchases

Abstract

Over half of all shopping journeys start with the mobile channel. In particular, the presence of a branded mobile app significantly influences shopping across channels. However, a majority of app users decrease app usage or even abandon an app, in part, due to app service failure(s). Do app failures influence purchases made within the online channel? Are there any spillover effects across other channels? What factors moderate the within and across channel effects? We leverage exogenous systemwide failure shocks in a large multichannel retailer’s mobile app and related data to examine the impact of app failures on purchases in all channels using a differences-in-differences approach. We investigate heterogeneity among shoppers using a set of moderators of these effects based on insights from prior research. Our analysis reveals that although app failures have a significant overall negative effect on shoppers’ frequency, quantity, and monetary value of purchases across channels, the effects are heterogeneous across channels and shoppers. Interestingly, the overall decreases in purchases across channels are driven by purchase reductions in brick and mortar stores and not in digital channels. Furthermore, we find that shoppers with a stronger relationship with the retailer, greater digital channel use, and who experienced failures less attributable to the retailer, are less sensitive to app failures. We outline failure preventive and recovery strategies for app providers based on the insights from this study.

Keywords: service failure, mobile marketing, mobile app, retailing, omnichannel, difference-in- differences, natural experiment

JEL Classification: M31, L81, C01, C23, C90