How Does a Failure in a Retailer's Mobile App Impact Purchases in its Online and Offline Channels?

50 Pages Posted: 20 Mar 2018 Last revised: 2 Jan 2023

See all articles by Unnati Narang

Unnati Narang

University of Illinois at Urbana-Champaign

Venkatesh Shankar

Texas A&M University - Mays Business School

Sridhar Narayanan

Stanford Graduate School of Business

Date Written: October 31, 2022

Abstract

How does a failure in a retailer’s mobile app impact shoppers’ purchases in its online (website and app) and offline (brick-and-mortar store) channels? Our main hypothesis is that an app failure has a negative effect on offline purchases and no effect on online purchases – after an app failure, shoppers who use the app primarily to search for information but make purchases mostly in the offline channels (search users) engage in search abandonment and forego or reduce their offline purchases; shoppers who use the app mainly to make purchases (checkout users) and online shoppers who use the app for search but purchase on the retailer’s website as well engage in channel switching, i.e., switch their intended action to the website as it is just a click away. An alternative hypothesis is that an app failure has no effect on purchases because shoppers engage in temporal substitution, i.e., simply delay their purchase and in channel switching for both search and purchase. It is challenging to empirically examine these hypotheses and estimate the causal effects of an app failure because field experiments inducing such failures are infeasible. We use a natural experiment, an exogenous two-hour failure in a large offline-dominant omnichannel retailer’s mobile app, to examine the effects of app failure on purchases in each channel. The results are consistent with our main hypothesis. An app failure has a significant overall negative effect on shoppers’ frequency, quantity, and monetary value of purchases across channels. This decrease in purchases after an app failure is driven by lower purchases in offline stores and not in the online channel, consistent with search abandonment and channel switching. Finally, an app failure has a smaller (larger) negative effect on the purchases of shoppers who spent more in the past (purchased more recently, searched for products on the app in the past) with the retailer.

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

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

Suggested Citation

Narang, Unnati and Shankar, Venkatesh and Narayanan, Sridhar, How Does a Failure in a Retailer's Mobile App Impact Purchases in its Online and Offline Channels? (October 31, 2022). Mays Business School Research Paper No. 3144434, Stanford University Graduate School of Business Research Paper No. 18-18, Available at SSRN: https://ssrn.com/abstract=3144434 or http://dx.doi.org/10.2139/ssrn.3144434

Unnati Narang (Contact Author)

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States
N/A (Fax)

HOME PAGE: http://unnatinarang.com

Venkatesh Shankar

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States
979-845-3246 (Phone)

HOME PAGE: http://www.venkyshankar.com

Sridhar Narayanan

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9675 (Phone)

HOME PAGE: http://https://gsbapps.stanford.edu/facultybios/bio.asp?ID=409

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