Does Mobile App Failure Impact Online and In-Store Shopping

Abstract

Mobile devices account for a majority of transactions between shoppers and marketers. Branded retailer mobile apps have been shown to increase purchases across channels (e.g., online and brick-and-mortar store). However, mobile apps are also prone to failures or disruptions in use. Does a failure in an omnichannel retailer’s branded app impact shoppers’ purchases? Are there cross-channel effects of these failures? Does the impact of failure vary across shoppers? These questions, although important, are challenging to answer because field experiments inducing failures are infeasible, and observational data suffer from selection issues. We identify a natural experiment involving an exogenous two-hour failure in a large omnichannel retailer’s mobile app during which the app became unavailable to all the shoppers. We examine the short-term impact of app failures on purchases in both online and store channels using a difference-in-differences approach. We investigate two potential mechanisms behind these effects, channel substitution and brand preference dilution. We also analyze shopper heterogeneity in the effects based on shoppers’ relationship with the retailer, past digital channel use, and other characteristics identified using machine-learning approaches. Our analysis reveals that an app failure has a significant overall negative effect on shoppers’ frequency, quantity, and monetary value of purchases across channels. The effects are heterogeneous across channels and by shoppers. The decreases in purchases across channels are driven by purchase reductions in stores and not in the online channel. The fall in purchases in brick-and-mortar stores is consistent with the brand preference dilution mechanism, whereas the preservation of purchases in the online channel is in line with the channel substitution mechanism. Furthermore, shoppers with a higher monetary value of past purchases and less recent purchases are less sensitive to app failures. The results suggest that app failures lead to an annual revenue loss of about $0.97-$1.36 million for the retailer in our data. About 47% shoppers contribute to about 70% of the loss. We outline targeted failure prevention and service recovery strategies that retailers could employ.

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

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