Strategic Product Information Provision and Pricing in the Presence of Word-of-Mouth: Omnichannel Retailing versus Dual-channel Retailing

Abstract

Omnichannel retailing is an emerging trend that integrates retailers’ product information provision and pricing as well as consumers’ reviews offline and online. This is different from traditional dual-channel retailing in which offline and online channels are operated separately without information integration. We develop a two-period game-theoretic model to study a retailer’s product information provision and pricing decisions in the presence of consumer reviews under dual-channel and omnichannel strategies. If the information provision cost is moderate, our analysis shows that the retailer should adopt a dynamic approach to managing product information and price in response to word-of-mouth (WOM). Otherwise, a static approach is more appropriate. We identify two distinct driving forces for omnichannel retailing to be more profitable than dual-channel retailing. If the information provision cost is relatively low, the omnichannel strategy benefits the retailer through a market expansion effect by eliminating the offline information limit. In contrast, if the information provision cost is moderate, omnichannel retailing benefits the retailer through a WOM effect by leveraging the dynamic approach. Nevertheless, dual-channel retailing may outperform omnichannel retailing in terms of consumer welfare by offering lower prices and more product information online. Our study offers useful insights into retailers’ channel management strategy for product information provision and pricing under the effect of WOM in the era of new retail.

Keywords: omnichannel, game theory, information provision, pricing, word-of-mouth