New Retail: Implications for Channel Choices under Competition

39 Pages Posted: 8 Jul 2021

See all articles by Ping Tang

Ping Tang

University of Texas at Dallas

Jianqing Chen

The University of Texas at Dallas, Jindal School of Management

Srinivasan Raghunathan

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: October 1, 2020

Abstract

The Internet and online retailing has disrupted traditional brick-and-mortar retailing immensely. In recent years, a hybrid omnichannel structure referred to as “New Retail” that promises to take advantage of the positive aspects of online and physical channels has emerged within the industry, and some industry experts tout New Retail as the future of retailing. In this paper, we provide insights into competing firms' retail-channel choices among online channel, physical channel, and omnichannel. The online and physical channels could differ in terms of geographical market coverage, consumer shopping cost, and consumer valuation—an online channel can serve both city and remote (suburban) consumers whereas a physical channel may be able to serve only city consumers, and consumers have a lower shopping cost in the online channel than the physical channel but can have a higher valuation for either the physical or the online channel. We find that an equilibrium in which at least one firm operates the omnichannel emerges only when consumers have a higher valuation for the physical channel. Moreover, neither firm would operate only the online channel in this case. In contrast, when consumers have a higher valuation for the online channel than the physical channel, neither firm is likely to operate the omnichannel. The market and channel characteristics have nonuniform and counterintuitive impacts on firms' profits under different equilibria. For instance, neither increasing the differentiation between the channels within a firm nor increasing the differentiation between channels across firms necessarily benefits firms. Furthermore, an increase in the number of city consumers relative to the suburban consumers can hurt the firm that serves only city consumers. The tradeoffs among interfirm competition, market expansion, consumer segmentation, and intrafirm-cannibalization effects of firms' channel choices are the driving forces that lead to our findings.

Keywords: new retail, channel integration, channel cannibalization, consumer segmentation

Suggested Citation

Tang, Ping and Chen, Jianqing and Raghunathan, Srinivasan, New Retail: Implications for Channel Choices under Competition (October 1, 2020). Available at SSRN: https://ssrn.com/abstract=3873025 or http://dx.doi.org/10.2139/ssrn.3873025

Ping Tang

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Jianqing Chen (Contact Author)

The University of Texas at Dallas, Jindal School of Management ( email )

800 West Campbell Road
Richardson, TX 75080
United States

Srinivasan Raghunathan

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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