Omnichannel Retail Strategy Considering Cost-Sharing and Consumer Heterogeneity under Different Power Structures

Abstract

This paper explores two Omnichannel retail models consisted of one online platform and one brick-and-mortar store under different power structures considering cost-sharing mechanisms. In retail supply chain dominated by the online platform and brick-and-mortar store, respectively, under a “Buy online and pick up in store” strategy, the influences of the cost-sharing ratio and the proportion of traditional consumers on pricing and service decisions, the demands of various groups of consumers, and the performance of the retail system have been examined. In addition, the results of decision-making and profitabilities of retailers under different power structures have also been considered. The key findings show that the optimal price and service level first increase and then decrease with the cost-sharing ratio in a retail system dominated by the online platform. In contrast, the price and service level increase with the cost-sharing ratio only when the proportion of traditional consumers is relatively large in a retail system dominated by brick-and-mortar store. The symmetry demand increases as the scale of traditional consumers shrinks when the cost-sharing ratio is relatively large in a retail system dominated by the online system. At the same time, it only increases when the cost-sharing ratio is in the range of 5/8,5/6 in a retail system dominated by the brick-and-mortar store. No matter what the power structure is, the profit of the retail system always first increases and then decreases with the proportion of traditional consumers. Additionally, when the cost-sharing ratio and the proportion of traditional consumers are relatively small, the total demand in the retail system dominated by the online platform is higher than that in the retail system dominated by the brick-and-mortar store. The total profit is larger in the online platform-dominated retail system than that in the brick-and-mortar store-dominated retail system when the cost-sharing ratio is relatively high. However, when the cost-sharing ratio is relatively low, the profitability of the brick-and-mortar store-dominated retail system is stronger.