Retailers' Multichannel and Price Advertising Strategies

Abstract

Online retailing boasts two major advantages: convenience of home shopping and easy access to information. In this paper, I argue that these two features have important implications for retailers' channel and advertising decisions. Two major questions are addressed: When should a conventional bricks-and-mortar retailer adopt a multichannel strategy? When should a multichannel retailer use its website to advertise offline prices? Analysis shows that the answers hinge on the nature of the product, the retailer's costs, and the competitors' strategies as well as the competitiveness of the market. Multichannel retailing is not necessarily the best strategy for all retailers; no adoption, asymmetric adoption, and symmetric adoption of the strategy are all possible equilibria. Advertising the in-store prices online is not always optimal. Price advertising in multichannel retailing has a different effect when compared with conventional single-channel retailing. It helps coordinate the channels by shifting the sales from online to offline, which is particularly useful when margins online are relatively low. The finding that multichannel retailers can benefit from drawing consumers back to physical stores highlights the risk of boosting online sales without considering the adverse effect on the offline channel and indicates a shifting role of the Web in retailers' businesses.

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