Online versus Bricks-and-Mortar Retailing: A Comparison of Price, Assortment, and Delivery Time

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