Archive | 2019
Is an Omni-Channel Strategy Always Good for Retailing? A Perspective of Product Descriptions and Consumer Reviews
Abstract
We consider a retailer selling a single product to consumers through an offline (brick-and-mortar) channel and an online channel. The consumers in each channel are heterogeneous such that the product fits the tastes of only a fraction of these consumers. The retailer provides a product description for each channel to help the consumers assess whether the product fits their tastes. The two channels are operated either separately under a dual-channel strategy or collectively under an omni-channel strategy. Under the former strategy, the retailer chooses a product description level for each channel, whereas a common product description level is chosen for both channels under the latter strategy. We construct a two-period game-theoretical model in which the retailer optimizes the product description levels to maximize her expected profit under each strategy. We find that the omni-channel strategy is more profitable than the dual-channel strategy if and only if the offline channel s product description limit and the consumers base product valuation are small. We further consider a review system where the consumers who purchase the product in period 1 may post their reviews. The fraction of positive reviews in period 1 will influence the purchase intention of the upcoming consumers in period 2. In the presence of the consumer reviews, even if the offline product description limit is large, the omni-channel strategy can still be more profitable. Furthermore, the consumer reviews may reduce the retailer s profit if the consumers base product valuation is sufficiently large.