Adding the Online-to-Store Channel to Supply Chain: Impact of Spillover Effect

Abstract

This paper investigates the impacts of an additional online-to-store channel and spillover effect on the optimal retail channel choice of a supply chain. In the presence of spillover effect, we discuss how the chosen retail channel affects the manufacturer’s profit, online retailer’s profit, and consumer surplus. Interestingly, our results reveal that there is an asymmetric effect of the online-to-store channel on the manufacturer and the retailer under spillover effect. Specifically, the retailer is better off adding the online-to-store channel if the spillover intensity is in the intermediate range, while the manufacturer is better off adding the channel if the spillover intensity is relatively high or low. Consequently, a win-win outcome for the retailer and the manufacturer will occur when adding the online-to-store channel under medium spillover intensity. We also show that the impact of online-to-store channel's introduction on consumer surplus depends on the spillover intensity. In particular, when the spillover intensity is at a moderate level, the consumer will gain more utility from buying through the online-to-store channel. Otherwise, the consumer will suffer a loss due to the online disutility cost. Overall, there is a win-win-win outcome for all channel members when the spillover intensity is not markedly positive or negative. Our findings offer valuable insights for managers and scholars by providing a better understanding of the joint functionality of online-to-store channel and spillover effect in retail channel management.