Finance Papers

Document Type

Journal Article

Date of this Version

8-2017

Publication Source

Management Science

Volume

63

Issue

8

Start Page

2478

Last Page

2492

DOI

10.1287/mnsc.2016.2473

Abstract

Many retailers have recently started to offer customers the option to buy online and pick up in store (BOPS). We study the impact of the BOPS initiative on store operations. We build a stylized model where a retailer operates both online and offline channels. Customers strategically make channel choices. The BOPS option affects customer choice in two ways: by providing real-time information about inventory availability and by reducing the hassle cost of shopping. We obtain three findings. First, not all products are well suited for in-store pickup; specifically, it may not be profitable to implement BOPS on products that sell well in stores. Second, BOPS enables retailers to reach new customers, but for existing customers, the shift from online fulfillment to store fulfillment may decrease profit margins when the latter is less cost effective. Finally, in a decentralized retail system where store and online channels are managed separately, BOPS revenue can be shared across channels to alleviate incentive conflicts; it is rarely efficient to allocate all the revenue to a single channel.

Copyright/Permission Statement

https://doi.org/10.1287/mnsc.2016.2473

Keywords

retail operations, omnichannel, strategic customer behavior, decentralization

Embargo Date

12-20-2016

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Date Posted: 27 November 2017

This document has been peer reviewed.