Online versus Bricks-and-Mortar Retailing: A Comparison of Price, Assortment, and Delivery Time
International Journal of Production Research, Volume 53, Issue 13, 2015
26 Pages Posted: 13 Nov 2012 Last revised: 2 Sep 2016
Date Written: July 18, 2014
Abstract
The popularity of online retailing has created great opportunities and challenges for retailers. A key challenge faced by many retailers is to choose between the clicks, the bricks-and-mortar, and the bricks-and-clicks strategies. In this paper, we develop a comprehensive framework for selecting the appropriate distribution channel given assortment, logistic, and consumer characteristics. Under the traditional bricks-and-mortar retail model, the retailer displays and sells the assortment in a physical store; whereas under the online retail model, the retailer accepts orders online and delivers the products offline. The traditional retailer jointly determines the breadth, the depth, and the price of the assortment; whereas the online retailer jointly determines the breadth and price of the assortment, and the delivery time. After deriving the joint optimal solution respectively for the traditional and the online retailers, we compare their performance. We analytically and numerically examine how inventory cost, delivery cost, and consumer behaviors could affect the optimal distribution strategy and customer service.
Keywords: Assortment, Delivery Time, E-Business, Multichannel, Price-Inventory Joint Optimization, Price-Time Joint Optimization
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