Pricing, channel design, and platform operations with buy-online-and-pick-up-in-store in online food delivery market

Abstract

Omnichannel selling has gradually become popular in recent years, and the booming online food delivery (OFD) industry is no exception. Buy online and pick up in-store (BOPS) is regarded as the most important omnichannel fulfilment strategy. In this paper, we establish a stylised model to analyse the effects of BOPS on customer purchases and merchant profitability in the OFD market. We also examine merchants’ pricing and channel design strategies and the operational management of OFD platforms. We consider two merchant segments: online-only merchants who sell products only online and omni-merchants who sell products both online and offline. Interestingly, we find that BOPS helps online-only merchants expand market coverage, but does not necessarily increase omni-merchants’ sales depending on the delivery time and delivery service fee. Furthermore, online-only merchants should always implement BOPS, while omni-merchants should be more cautious about implementing BOPS because it may hurt their profits. In addition, the OFD platform charges a higher delivery service fee under certain conditions to react to merchants’ strategic adoption of BOPS. Finally, the adoption of BOPS may benefit merchants, customers, and platforms simultaneously. Therefore, BOPS may alleviate the contradictions among players in the OFD market.