Impact of a “Buy-online-and-pickup-in-store” Channel on Price and Quality Decisions in a Supply Chain

Abstract This paper studies the impact of a “buy-online-and-pickup-in-store (BOPS)” channel on quality, prices, and profits of a manufacturer and a retailer. We analyze a Stackelberg game-theoretic model where the manufacturer produces and sells a product with a quality level to the retailer at a wholesale price, and the retailer sells the product to end customers at a selling price through a Store channel, an Online channel or a BOPS channel (if available). The retailer would incur an extra handling cost if opening the BOPS channel, and customers would incur a shipping and transaction cost if purchasing from the Online channel and the Store channel, respectively. We find that both the manufacturer and the retailer can benefit from adding the BOPS channel under certain conditions. Moreover, when the BOPS channel is not available, adding the Store channel is beneficial for both parties and results in lower quality and wholesale price but higher selling price when the shipping cost is relatively high. When the Store channel is dominated by the available BOPS channel, however, opening the Store channel cannot benefit both parties. We also show that adding the BOPS channel would increase (reduce) both consumer surplus and social welfare for a sufficiently low (high) handling cost. We further observe that it is profitable for a centralized decision maker to add the BOPS channel via increasing both the price and quality under some simple conditions. Finally, we extend our base model to a more general one and illustrate our main results remain valid.