The Paradox of Choice: The False Premise of Omnichannel Services and How to Realize It
51 Pages Posted: 5 Sep 2019 Last revised: 30 Nov 2019
Date Written: August 29, 2019
The notion of omnichannel, an integration of brick-and-mortar stores with online channels, has been thriving in recent years and is reforming the traditional service industry. Many service chains, such as Starbucks and McDonald's, have been establishing omnichannel capability by allowing customers to order online in advance before visiting stores for pick-up. The premise of omnichannel services is that the online ordering option enables a low-cost way of waiting so that when customers take advantage of it, both their utility and the provider's revenue will increase. Although simply adding an online ordering option to the conventional walk-in model stimulates revenue, we show it inadvertently aggravates customers' individual utility and social welfare. This aggravation results from the channel interference to the walk-in customers by online orders due to self-interested channel choices -- a paradox of choice. Surprisingly, the less costly ordering and waiting online are, the more acute this aggravation is. To address this paradox, industry practitioners have been experimenting with various operational strategies, including regulating the usage of the online channel and establishing channel-dedicated capacities. Yet these strategies are shown to be ineffective. Instead, we advocate that a win-win omnichannel service requires maintaining a high capacity utilization while eliminating the intra-channel interference. We demonstrate that prioritizing walk-in customers or incorporating capacity flexibility in the channel-dedicated system can lead to a win-win omnichannel system. Our results highlight the need for synergy between innovative technology and effective operational strategies to create efficient marketplaces.
Keywords: service operations; omnichannel services; customer choices; channel interference
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