Channel Integration Choices and Pricing Strategies for Competing Dual-Channel Retailers

Abstract

The “buy online and pick up in store” (BOPS) mode is gaining tremendous popularity among retailers since it is convenient for consumers and brings additional store sales to retailers. However, operating the BOPS channel requires additional investment, which is a challenge for retailers. This article considers the pricing strategies of competing dual-channel retailers, focuses on whether and when they should adopt the BOPS strategy, and explores the impacts of market factors on the equilibrium outcomes. Since retailers’ decisions are usually made sequentially in reality, we use the Stackelberg game model to analyze retailers’ optimal strategies. First, we show that the follower's price is not always lower than the leader's price. Specifically, when the unit additional profit from cross-selling of the follower is low enough, the follower will set a higher price than the leader. Second, we find that retailers prefer the BOPS strategy when the fixed costs for offering BOPS channels are low enough, or when the difference between the additional profits from cross-selling of two retailers is sufficiently large. Third, we present an interesting insight: an increase in product return probability or retailer cost of handling a returned product can be beneficial to retailers.