Does Retailer Benefit From Implementing “Online-to-Store” Channel in a Competitive Market?

Retailers are increasingly implementing an online-to-store channel, i.e., buy online and pick up in stores (BOPS), to better target different segments of consumers. It is important for retailers to determine whether to implement such channel in addition to traditional brick-and-mortar (BM) channel or both BM and online channels [double channels (DC)] in a competitive market. To address such a challenging issue, we develop theoretical models to derive the optimal channel strategy for BM and DC retailers, respectively. To this end, we assume that two competing retailers sell two substitutable products to the same group of consumers, and consider two scenarios, i.e., no retailer and both retailers offering BOPS channel. We then extend our analysis to an asymmetric competition case where only one retailer offers such channel. We find that BM retailers and DC retailers need to be cautious when implementing this BOPS channel in a competitive market. Specifically, we present the conditions under which retailers can benefit from implementing BOPS channel. Interestingly, products with a relatively high return rate are not suitable for BOPS option for BM retailers, but may benefit DC retailers. This provides an important insight that retailers should carefully choose the right products to sell through BOPS channel.