Price, online coupon, and store service effort decisions under different omnichannel retailing models
Omnichannel retailing, which integrates brick-and-mortar stores and online e-commerce, has been increasingly adopted by large retailers. For example, Walmart offers a Buy-Online, Pick-up In-store (BOPS) option, and Amazon conducts a brick-and-mortar showroom service to allow customers to experiment and touch the goods before purchasing. As omnichannel services primarily aim to facilitate channel conversion and improve channel integration for consumers, retailers usually adopt a unified pricing strategy for online and offline channels. However, consumers have a different willingness to pay for homogenous products when purchasing through different channels; hence, a challenge for omnichannel retailers is how to flexibly adjust consumers’ channel utility given the different marketing characteristics and consumer preferences across channels.
Coupons, a price discrimination tool, can impact consumers’ payment and in turn help omnichannel retailers adjust consumers’ channel utility by assigning different values to coupons in different channels. Retailers can also exploit synergies between channels, as coupons are also a means to trigger consumers’ interactions across channels when consumers purchase via one channel but prefer a sales promotion offered by another channel. Previous studies on coupon promotion mainly focused on a single-/dual-channel context and a single pricing strategy, but understanding of the omnichannel retailing context and the joint design of price, coupon, and service is limited. Scholars have also paid little attention on comparing the different omnichannel models.
Addressing these gaps, this paper proposes an analytical model where the omnichannel retailer provides coupons online and invests in service efforts offline. It seeks to quantify the role of coupons, understand the optimal operation strategy, and explores coupon promotion policies. It does so by investigating two coupon-providing patterns (providing a common value and different value coupons via different channels) and considers different omnichannel retailing models (the BOPS model, the Showroom model, and the Interactive model).
Method
A theoretical analysis was conducted to explore the operational strategies and coupon promotion policies. Consumers were segmented into: (1) those who browse and purchase products online and wait for the product to be shipped (online only); (2) those who browse and purchase products online and pick their orders up in-store (BOPS); (3) those who visit the store then switch to online purchasing (showroom); and (4) those who visit the store and buy in-store directly (offline only). The three models, including the BOPS model, the Showroom model, and the Interactive model that combines the characteristics of BOPS and Showroom, were explored by the paper. For each omnichannel model, three coupon distribution scenarios were discussed: Scenario N in which the omnichannel operation strategies offered no coupon; Scenario C in which coupon promotions with a common value were offered in the online-only and BOPS/showroom channels; and Scenario D in which coupon promotions with different values were offered in these channels. Profits under each model were compared by deriving the three decision values: price, coupon value, and service effort.
Key findings and recommendations
Regarding omnichannel operation strategies, the retailer’s profit increases with consumer’s incremental purchasing if and only if the incremental purchasing has a large value. The retailer should utilise the BOPS channel when consumers have a higher willingness to make incremental purchases. A showroom channel should be opened when consumers pay more attention to the product experience. The Interactive model charges the lowest price among the three models when consumers’ incremental purchasing is low and the service effort coefficient has a low value. Conversely, price in the BOPS model is the lowest if the consumer’s incremental purchasing is sufficiently large and the service effort coefficient is small. Meanwhile, the Showroom model sets the lowest price if the service effort coefficient is large enough.
The findings also have implications for coupon promotion policies. The Showroom model invests most in service effort and provides coupons with the largest value but obtains the lowest profit. On the other hand, although the BOPS model requires less service effort and price and coupon value are not too large, but the retailer gain the highest profit with this model. Moreover, in in the BOPS model, retailers should distinguish the coupon value for online-only and BOPS channels when consumers are less sensitive to coupons from the online-only channel, but should unify the coupon values in these 2 channels when consumers are more sensitive. In the Interactive model, retailers profit more from unifying the coupon value for the 2 channels.
Researchers
More information
The research article is also available on eprints.