Channel Changes Choice: An Empirical Study about Omnichannel Demand Sensitivity to Fulfillment Lead Time

62 Pages Posted: 28 Feb 2020 Last revised: 10 Apr 2023

See all articles by Stanley Frederick W.T. Lim

Stanley Frederick W.T. Lim

Michigan State University – The Eli Broad College of Business

Fei Gao

Indiana University Bloomington

Tom Tan

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM)

Date Written: February 21, 2020

Abstract

We examine a large transaction-level data set of an Italian omnichannel furniture retailer to study channel-specific effects of fulfillment lead time on demand. This omnichannel retailer sells the same products and has the same product fulfillment across three channels – showroom, online and catalog. A showroom channel carries no inventory but allows customers to touch and feel the products. An online channel provides a website for consumers to browse and order the products. A catalog channel sends a product catalog to all the households in Italy for them to place an order over the phone. We find that the showroom channel makes consumers less sensitive to fulfillment lead time than both online and catalog channels. In particular, a 10% increase in lead time (1.84 days from the sample mean of 18.35 days) causes a 0.85% reduction in the sales per order (~ EUR 7.6 from the sample mean of EUR 889.94) at the showroom, less than the reduction of 1.14% and 1.23% in the online and the catalog channels, respectively. This finding contradicts the common practical and theoretical assumption about homogeneous lead time sensitivity across channels. In addition, we find that niche products and experience goods accentuate the difference of lead time sensitivity between showroom and non-physical channels. We further develop a stylized model to study the implications of our empirical findings for the design of an omnichannel retailer’s facility network. Given our finding that shows the showroom wait sensitivity is smaller than online wait sensitivity, retailers should build fewer but larger showrooms than the homogeneous wait sensitivity suggests.

Keywords: omnichannel retailing, demand sensitivity to lead time, showrooms, online channel, catalog channel, facility network, empirical retail

Suggested Citation

Lim, Stanley and Gao, Fei and Tan, Tom, Channel Changes Choice: An Empirical Study about Omnichannel Demand Sensitivity to Fulfillment Lead Time (February 21, 2020). SMU Cox School of Business Research Paper 20-02, Available at SSRN: https://ssrn.com/abstract=3544824 or http://dx.doi.org/10.2139/ssrn.3544824

Stanley Lim

Michigan State University – The Eli Broad College of Business

Business College Complex 632 Bogue St
East Lansing, MI 48824
United States

Fei Gao

Indiana University Bloomington ( email )

1309 E 10th St
Bloomington, IN 47405
United States

Tom Tan (Contact Author)

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM) ( email )

Dallas, TX 75275
United States

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