Pricing Best Sellers and Traffic Generators: The Role of Asymmetric Cross-selling

Abstract

Among the many items online retailers sell, some stand out as best sellers and are often sold at considerable discounts. Best seller discounting can encourage customer traffic and the purchase of a basket of other products in the same transaction. Although most studies treat retailers as symmetric, the cross-selling potential is generally asymmetric across retailers, since some online retailers have more products to sell. In addition, the cross-selling effect works both ways — customers intending to buy a best seller may buy other items in their shopping basket, while other customers intending to buy a basket may buy a best seller while visiting the retailer. The authors model the pricing implications of this rich variety of asymmetric cross-selling, with both best sellers and typical baskets acting as traffic generators and cross-sold products. The common wisdom that loss leader pricing leads to neither a significant increase in store traffic nor an increase in profits does not apply in an asymmetric case where one retailer has more products to cross-sell. The cross-selling potential of products even far down the best seller list is demonstrated. Empirical analyses provide support for key findings of the theoretical model using book pricing and sales rank data from multiple online retailers.