Channel Integration Strategies for Competing Dual-Channel Retailers: Effect of Cross-Selling
49 Pages Posted: 6 Jun 2019
Date Written: May 18, 2019
The “buy online and pick up in store” (BOPS) mode is gaining tremendous popularity among dual-channel retailers since it is convenient for consumers and brings additional store sales to retailers. It is one of the new sales models in the era of omnichannel retail. However, given the large investment required to operate this new sales channel, offering the BOPS channel to fulfill online orders in physical stores is a challenge for retailers. This study considers the pricing strategies of two competing dual-channel retailers, focuses on whether and when the retailers in a Stackelberg game should adopt the BOPS strategy, and explores the impacts of market factors on the equilibrium outcomes. First, we show that the follower’s price is not always lower than the leader’s price. Specifically, when only the follower adopts the BOPS strategy, and the demand for its BOPS channel is large enough, the follower will set a higher price than the leader. Second, we find that retailers prefer to adopt the BOPS strategy when the unit operating cost of the offline channel is large, and the operating cost of the BOPS channel is small. Third, we present an interesting insight: an increase in additional profit from cross-selling is not always beneficial to a retailer. If a retailer benefits from the increase in additional profit from cross-selling, it will be the only retailer who offers a BOPS channel, and the demand for its BOPS channel is sufficiently large.
Keywords: electronic commerce, omnichannel retailing, buy online and pick up in store, competition, pricing, Stackelberg game
JEL Classification: M00
Suggested Citation: Suggested Citation