Integrating the customers’ perceived risks and benefits into the triple-channel retailing

Abstract

Multiple channel retailing and channel selection strategy have become key issues for many corporations to place themselves at the heart of a new era of retailing. This paper studies a triple-channel system in which a manufacturer operates a conventional channel, a direct online channel, as well as increases its online presence with an online shopping platform. It also takes the heterogeneity of consumers’ price sensitivity and channel preferences into account. It highlights that the perceived risks and perceived benefits are aggregated into an inhibitor or activator entering the customers’ acceptance of triple channels and further affecting their purchasing decisions. Three cases are discussed to investigate the demand distributions, the profit behaviours, the optimal pricing strategies and the channel selection strategies. Theoretical analysis is further validated by a case study with the aid of agent-based modelling. Sensitivity analysis demonstrates that two acceptance indices – respectively, regarded as the consumers’ willingness to tolerate the perceived risks of the online channel and approve the perceived benefits from the third-party online platform – significantly govern the total profit in two stylised scenarios. This study schematically characterises the structure of demand distributions, helps the corporation to discern consumers’ channel choices and then focus its marketing efforts towards more profitable customers and strategic channel structures. Furthermore, some implications are outlined for the optimal supply chain designation decision.