Dual-channel retailing strategy vs. omni-channel buy-online-and-pick-up-in-store behaviors with reference freshness effect

Abstract

When the freshness of the firm's food is not observable, consumers may experience psychological feelings of elation or disappointment when the perceived actual freshness exceeds or falls short of their initial expectations. This paper investigates the firm's optimal selling strategies considering the consumer reference freshness effect in a fresh food supply chain. We consider two selling modes: the dual-channel retailing strategy (DCRS) mode in which the retailer sells food to consumers from store and online, and the omni-channel buy-online-and-pick-up-in-store (BOPS) mode in which the retailer additionally provides the BOPS option to consumers. Furthermore, the case of two competing suppliers is also considered. We show that on the one hand, the reference effect positively affects price strategies at a low reference freshness, and negatively affects goodwill and freshness-keeping effort in both the DCRS and BOPS modes. The BOPS mode helps to mitigate the negative effects and improve them. On the other hand, the differences found between the two modes indicate that BOPS mode is not always better than DCRS mode. Prices are higher in BOPS mode than in DCRS mode at a high reference freshness, otherwise the prices in DCRS mode are higher at a low reference freshness and with large BOPS channel size. Although BOPS mode helps to alleviate the anchoring effect, it creates higher requirements in terms of the firm's freshness-keeping efforts. If consumer perceptions of freshness as high/low are only dependent on a high/low goodwill, then the firm's profit in DCRS mode is more likely to be higher than in BOPS mode.