Retailers' Multichannel and Price Advertising Strategies

Abstract

Online retailing boasts two major advantages: convenience of home shopping and easy access to information. In this paper, I argue that these two features have important implications for retailers' channel and advertising decisions. Two major questions are addressed: When should a conventional bricks-and-mortar retailer adopt a multichannel strategy? When should a multichannel retailer use its website to advertise offline prices? Analysis shows that the answers hinge on the nature of the product, the retailer's costs, and the competitors' strategies as well as the competitiveness of the market. Multichannel retailing is not necessarily the best strategy for all retailers; no adoption, asymmetric adoption, and symmetric adoption of the strategy are all possible equilibria. Advertising the in-store prices online is not always optimal. Price advertising in multichannel retailing has a different effect when compared with conventional single-channel retailing. It helps coordinate the channels by shifting the sales from online to offline, which is particularly useful when margins online are relatively low. The finding that multichannel retailers can benefit from drawing consumers back to physical stores highlights the risk of boosting online sales without considering the adverse effect on the offline channel and indicates a shifting role of the Web in retailers' businesses.multichannel retailing, Internet, price advertising, distribution channel, channel coordination, game theory

How Is the Mobile Internet Different? Search Costs and Local Activities

“…In the academic literature, this idea has been explored in depth. Balasubramanian (1998) and Zhang (2009) analytically discuss the role of distance to offline stores in substitution between online and offline retail channels. Several empirical studies show that the online channel is more valuable when consumers have to travel further to reach an offline store (Forman et al 2009, Anderson et al 2010).…”

One firm, one product, two prices: Channel-based price differentiation and customer retention

“…Several researchers recognize the possibility of channel-based price differentiation (Grewal et al, 2010;Kauffman et al, 2009;Myers et al, 2004;Neslin and Shankar, 2009;Zettelmeyer, 2000;Zhang, 2009;Zhang et al, 2010) and note its potential positive and negative effects, though without offering empirical evidence of the outcomes of such a strategy. In the first study to verify the existence of channel-based price differentiation in practice, Wolk and Ebling (2010) report that for almost 63% of products sold by retailers that engage in channel-based price differentiation, prices are higher offline than online.…”

Direct versus indirect channels

“…In this line, it is generally reported that prices in indirect channels are higher than in direct channels (Brunger, 2010;Brunger and Perelli, 2009); note that, when margins in the latter are low, Zhang (2009) suggests that multichannel retailers can benefit from drawing consumers back to physical stores.…”

“…A recurrent conclusion is that brick-and-mortar retailers want to beat the convenience of home shopping and easy access to information provided by today's direct sales mechanisms; however, in order to reach this objective, these physical intermediaries necessarily have to add value to the product (Zhang, 2009;Mukhopadhyay et al, 2008).…”