Does Greater Online Assortment Pay? An Empirical Study Using Matched Online and Catalog Shoppers

Abstract

Most multichannel retailers offer larger assortment in their online channel than in the offline channels. Conventional belief holds that larger assortment leads to more sales. However, offering more products could also cannibalize the sales of the retailer's main product offerings, hence reducing efficiency in assortment management and increasing cost. Recent behavioral research suggests that excessive assortment can lead to customer cognitive overload and deter them from purchasing. In this paper, we investigate the effect of large online assortment on customer spending. We empirically estimate the effect of large online assortment by exploiting the natural experiment of channel migration, which allows us to compare the spending of customers who migrated to the retailer's online channel with that of a holdout group of pure catalog shoppers. We find that online customers outspend those catalog shoppers by 10.7 percent on the retailer's mainline products. We provide evidence that the increased spending by online customers is due to lower product search cost in the online channel. Lastly, our research suggests that the online sales of low-volume niche products can be an important source of revenue for the retailer.