How to Retain My Consumers? Investigating Incumbents’ Promotional Strategies Upon New Business Entry in the Online-to-Offline Context

Abstract

The online-to-offline (O2O) business mode has on-demand features to offer consumers instant fulfillment from a local store upon their online order. The O2O mode has attracted many more consumers recently. Using empirical evidence from a leading O2O platform in China, our study focuses on the market entry issue in the O2O context. Upon the new entrant entering the market, existing listed sellers implement a higher overall promotion to their consumers by enlarging the direct promotion extent but reducing the other types of promotions, including coupon, bundle, quantity, and gift promotions. However, the O2O platforms reduce the promotions level to the consumer orders from the existing listed sellers. The platform’s and existing listed sellers’ promotions increase consumers’ purchase frequency but lower their purchase amount per order. The extent of these impacts depends on the geographic location of the new entrant. Our findings provide guidelines for the O2O platforms and listed providers to implement appropriate promotion strategies to attract consumers when considering the impact of certain new providers entering the O2O market.

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