cross-channel product ordering and payment policies in...

Introduction

Retailing firms face market pressures to transact with consumers acrossmultiple channels – brick-and-mortar stores, catalogs, kiosks, andWeb sites – andconsequently,toexploitthesynergiesacrossthem.Aretailer’sobjectiveistodistributeresourcesacrossthechannelmixtosatisfycustomersandmaximizeprofits.Animportantstrategicdecisionfacinganyretailingfirminthiscaseiswhethervariousdistributionchannelsshouldbeintegratedsoconsumerscanseamlesslyusemultiplechannelstocompleteasinglepurchasetransaction.Or,shouldmultiplechannelsbeindependentlymanaged,soconsumersarerestrictedtoasinglechannelforaparticulartransaction?Whiletheintegrationofremoteretailchannelslikecataloguesandonlinestoreshasbeenwidelyaccepted (andhencenotaddressed in this research), the integrationofremoteandstore-basedretailchannelspresentsachallengingissuebecauseofcosts,channel conflicts and other strategic implications. Most research on multichannel

* RutgersUniversity,Newark,NJ07102-1897,[email protected]

Cross-Channel Product Ordering and Payment Policies inMultichannelRetailing:ImplicationsforShoppingBehavior

andRetailerProfitabilityPatrali Chatterjee*

The explosive growth of non-store retailing channels and consumers’ desire to gain shopping benefits and cost advantages by shopping across multiple channels has made multi-channel retailing a key source of competitive advantage. Commercial reports and academic research suggest that the successful implementation of multi-channel retailing depends on how well multiple channels are integrated and cross-channel policies are developed to offer a seamless shopping experience to customers. However, less attention has been given to their impact on increasing competition or cannibalization within the firms’ own channels. Thus the impact of successful multi-channel integration will vary across retailers depending on the type of consumers they attract through different channels and may explain why some retailers may choose not to offer or integrate multiple channels.

In this research, we investigate customer shopping orientations that influence consumer choice of channels during the purchase transaction (ordering, payment, and fulfillment) stages and how differences in cross-channel ordering and payment policies have consequences for purchase outcomes. We used multiple sources of data to examine our hypotheses. Data from store, web, and cross-channel shoppers show that consumers differ in their selection of multiple and cross-channel retailers based on their shopping orientations. Retailer satisfaction, unplanned purchasing, and sizes of purchase orders are higher for cross-channel retailers. The impact of simultaneous (prepayment) and separable (no prepayment) cross-channel ordering and payment policies shows that separable policies lead to greater satisfaction, unplanned purchases, and purchase order sizes. An exploratory survey of the number and types of channels used, cross-channel and multiple channel ordering, and payment and fulfillment policies of retailing firms in several SIC (or NAICS) codes was used to identify experimental contexts for our study. Managerial implications for pricing consistency, customer segmentation, and retail market structure are discussed.

Journal of Shopping Center Research32

Volume 13, Number 2, 2007

strategy by firms and multichannel use by consumers focuses on the informationsearchstageofthepurchaseprocess(BaalandDach,2005).However,theimplicationsof amultichannel strategyon the transaction stage (productordering,payment andfulfillment)ofthepurchaseprocess,whichinvolvesthetransferofmoney,informationand goods across distribution channels, have not been adequately addressed in theexisting literature.The consequences on consumer shopping outcomes and retailerprofitabilitydifferbasedonwhether transactionoperationsofmultiplechannelsareindependentorintegrated.Tothisend,thecross-channelpoliciesadoptedbyfirmsarethefocusofthisresearch. Current research on multi-channel retailing does not distinguish betweenmultiplechannelretailersthatoperatemultiplechannelswithindependenttransactionoperations (i.e., order andpick-up in-store,orderonlineandgetproductdelivered)andcross-channel retailers that integratemultiplechannelsandallowcross-channeltransfersofinformation,moneyandgoods(orderonlineandpick-upinstore,orderin-storeandgetproductdelivered).Similarly,theresearchonmulti-channelconsumersdoes not distinguish between the consumers that use one channel (e.g., web) forinformationsearchandbuytheproductin-store(andviceversa),andthosethatprefertousemultiple channelsnotonlyduring the information searchphasebut also thepurchasetransactionitself.Retailerswithbricks-and-mortarstoresincreasinglyusethelocalizede-commercemodel,wherebyconsumersviewproductinformationandorderproductsthroughthewebsite(orprintcatalog)andcanopttopickuptheproductatthelocalstore.Henceresearchonmultichannelusageduringthepurchasetransactionstage–ordering,paymentandfulfillmentisseriouslyneeded. Existingcommercialandacademicresearchdemonstratesthatbyofferinganarray of delivery channels, retailers can increase customer satisfaction, loyalty andfirmvalue(LeeandGrewal,2004);however,itdoesnotindicateifadditionalgainsaccruefromtheirintegration.Frequentlyexpressedhypothesesmadebyproponentsofmulti-channelretailingsuggestthatthebenefitsofusingmultiplemarketingchannelsgobeyondthesalesgeneratedthrougheachofthesemodes,andarerealizedwiththeexploitationofthesynergiesacrosschannels(Kimetal.,2002),savingsontransactioncosts (Dutta, Heide, Bergen, and John, 1995), and increases in market coverage(FriedmanandFurey,2003).Theprimaryhypothesisadvancedbythisresearchisthatmultiplechannelretailersincreaseconsumervaluebyofferingshoppingconveniencethrough a seamless experience across all of the firm’s channels, which allows theconsumer to choose when, where and how theywant to interact with the retailer.Thiswillleadtoevenhigherconsumervalueifthemultiplechannelsareintegrated.Consumers reward such retailers by purchasing more and concentrating the shareoftheirpurchasescomparedtosingle-channelcustomers(BaalandDach,2005).Intoday’shighlycompetitiveretailenvironment,offeringmultipleintegratedchannelsisthepredominantwayforretailerstodifferentiateandpursueaservice-orientedbusinessstrategy.Bynotintegratingchannels,retailersmightinfactforgoprofit-maximizingopportunities. Acontrary streamof researchonchannel cannibalization suggests that thetotaldemandforaspecificretailer’sgoodsisratherrigidandnotcontingentonthenumberofthecompany’schannels(Deleersnyder,Geyskens,GielensandDekimpe,

Cross-Channel Product Ordering & Payment Channels 33

2001).Ifmultiplechannelscompeteforrigid,exogenoussalespotential,integratingchannels will increase channel maintenance costs without adding to overall sales.Further,integratingchannelsrestrictstheretailertobalancingpricing,positioningandmerchandising strategyacross channels, thus limiting theirflexibility to respond tocompetition in theonlineandofflinemarketplacesand todifferentiate theirmarketofferingsacrossvarioussegmentsofconsumers.Furtherchannelintegrationrequiresheavy investment instandardizingdataaboutcustomersand interactionswith themfromdifferentsystemswhichareindividuallyefficientbutnotinteroperable,andcandestroyapreviouslywellrunmultiplechannelsystem.Thus,amultichannelretailercould be at a disadvantage compared to competitors with multiple independently-managedchannelsorthosewithfewerchannels. Most importantly, though, the behavioral consequences of cross-channeldelivery options on consumer shopping experiences have been largely unexplored.Commercialstudiesreportthatmulti-channelshoppersspendmoreandhavehigherincomes(Stringer,2004).However,surveydatacannotidentifywhethermulti-channelshopperspurchasemoreduetotheirhigherincomesorduetogreateraccessibilitytomultiplechannels.BaalandDach(2005)findthat20%ofcustomersswitchretailerswhentheyswitchchannelsbetweeninformationcollectionandpurchasetransactionstages.Hencethereisatendencytowardsfree-riding,andmultichannelretailerscouldretainsubstantiallyfewercustomers.Pleasenotethatthesefindingsapplytoretailersthatdidnotallowchannelswitchingduringthetransactionprocess.Theimplicationsfor retailers allowing customers to change channels during the transaction processarelargelyunknown.Consequentlyitisnotclearifintegratingmultiplechannelscanfurther increase sales revenues, satisfaction with shopping experience and retailerprofitability.Despite the important strategic reasons for or against integration, it iscriticalforbothmanagersandresearcherstogaininsightintoconsumer-levelresponsestomultichannelretailingstrategiesandtheirimplicationsforretailerprofits. We seek to answer several basicmanagerial questions in this paper. First,howdoconsumershoppinggoalsidentifiedinpriorresearchinfluencecross-channelusageduringthepurchasetransactionprocess?Second,doconsumerswithdifferentshopping orientations differ in their propensity to seek information on competitiveofferings?Third,howdocross-channelpre-paymentpolicies impact channelusage(single channel,multiple channelor cross-channel)during thepurchase transactionprocessandpurchasingoutcomes(purchaseincidence,purchaseordersize,unplannedpurchasing,purchaseabandonment/returnsandsatisfactionwithretailer).Fourth,dothese effects differ if the fulfillment is through a remote (i.e. online) channel or aphysical(i.e.store)channel? Inthenextsection,wediscussdeterminantsofmultipleandcross-channelusebyconsumersduringthetransactionprocessandtheirimpactonconsumershoppingbehavior.Next,weprovideaconceptualframeworkfortheexaminationofdifferenttypes of cross-channel ordering and payment policies used by firms and proposehypotheses.Then,wedescribetheresearchdesign,whichincorporatesmultipledatasources:(a)quasi-experimentusingweb-based(atonlinestores)andpapersurveys(inbrick-and-mortarstores)toexaminehowconsumersrespondtocross-channelordering,paymentanddeliverypoliciesinuniversitybookstores;(b)consumersurveysatbrick-



and-mortarstoresinvariousindustriestovalidateourfindings;and(c)anexploratorysurvey of retail managers to investigate adoption, level of integration of multiplechannelsandtypesofcross-channelstrategiesusedinseveralmajorretailsectorstoguideourselectionofretailstoresandcontextsforourexperimentsandsurveysin(a)and(b).Wediscussourempiricalfindingsandconcludewithmanagerialimplicationsforretailers.

Conceptual Framework and Hypotheses Retailersoftendifferentiatethemselvesfromtheircompetitionbyaugmentingtheir core product offerings with service outputs (e.g., product selection, attributeinformation, and extendedhours of operation) providedbefore, during, and after apurchase, all of which facilitate ordering, payment and product delivery/pick-upstagesinapurchaseprocess(Bucklin1966;SternandEl-Ansary,1992).Thestrategicimplications of offering multiple independent channels as service outputs differfrommultipleintegratedchannelsthatallowcross-channelmovementsofconsumerinformation,moneyandproducts.Atamultiplechannelretailer,thetransactionstagesof the purchase process have to be executed in a single channel, either in-store orremotely.Incontrast,across-channelretailerallowsallthreestagesofthetransactiontobeunbundled (i.e., conductedwithinachanneloracrosschannels)basedon theconsumer’spreferences.Atacross-channelretailer,notonlycantheconsumersearchonlineandgo to thestore topurchaseorviceversa, theconsumercanalsochangechannelsacrossthestagesofthesametransactiontoexploitbenefitsofeachchannelwhileavoidingcostsinherentineachchannel. Kim et al. (2002) suggest that consumer’s choice of a retail channel tocompletepurchasetransactionsissignificantlyaffectedbycostsandbenefitsincurredtosatisfyshoppinggoals.Channeltypesdifferintheirabilitiesinperformingvariousretailserviceoutputsandthebenefitsandcoststheyimposeonconsumers(Bucklin,Ramaswamy, and Majumdar, 1996). Pure-play online stores provide expandedtemporalandgeographicalaccessibility,largerassortment,factualproductinformation,and novelty (Grewal, Iyer, andLevy, 2004).The availability of search capabilitiesand tools tomanage and compare objective information imply that prominence offactual information (as opposed to sensory information) and price search facilitatetheinformationsearchandprocessingstageofthepurchaseprocessnotonlywithinaretailer’ssitebutalsoacrossretailers(Balasubramanium,Raghunathan,andMahajan,2005).However,theremotenatureofthechannelimpliesthatproductfulfillmentistemporally separated from theordering andpayment process.Hence transportation(shipping) and waiting time costs for product fulfillment have to be borne by theconsumer. Incontrast,thetraditionalin-storeretailerbearsmostofthetransportationandwaitingtimecostsandoffersphysicalaccessibilityandimmediateproductpossession.However,consumersbeartheeffortandtimecostsofcollectingfactualandsensoryproduct information given limited geographical and temporal accessibility. Thedifferencesbetweenphysicalandonlinechannelsgaingreatersignificanceascross-channelfirmsoperatingwithinthesechannels,aswellasacrosschannels,competeby


leveragingchannel features tocreateanddeliverdifferentvaluepropositionswhilesellingthesamephysicalproductorcommodity.Whilemultipleindependentchannelretailersallowconsumerstoself-selectthemselvesintooneofthechannelsprovidedtocompletetheirtransaction,consumersbeartheshoppingcostsinherentinthechosenchannelnotunlikeshoppingwithasinglechannelretailer. Aportfolioofcomplementarychannelsmakesagreateranddeepermixofserviceoutputsavailable to thefinalcustomer(FrazierandShervani,1992).Cross-channelretailersoffering“orderonlineandpickup in-store”or“order in-storeandhave it delivered home” services allow consumers to switch channels at variousstagesofthetransactionprocesstosubsidizethetransactionandsearchcostsacrosschannelswhileincludingtheoptionofusingasinglechannelfortheentireprocess.Withmore service outputs seamlessly available across several channels, customershavetheopportunitytoengagearetaileracrossmultiplecontactpointsduringasinglepurchase, enhancing customer satisfaction and retailer loyalty (Wallace,Giese andJohnson,2004).Therefore,thefollowinghypothesiswouldappearplausible:

H1a. For firms with the same number of channel modes, retailer satisfaction will be higher for firms that allow cross-channel transactions than for multi-channel retailers who restrict consumers to transact in one of their multiple channels.

Furthermore,cross-channelintegratedsystemsallowreturnsacrosschannels,reducingtherisksofshopping.Thissuggests:

H1b. Purchase incidence will be higher at a cross-channel retailer compared to a multiple channel retailer.

Influence of Consumer Shopping Orientations On Cross-Channel Usage

The extant published research on the goals that consumers seek to satisfyduring the transaction stage of the purchase process suggest that customers’ desirefor convenience and their quest for self-affirmation related to decision expertiseandthriftcandrivetheirselectionofchannelswhenpursuingpurchasetransactions(Balasubramanium,Raghunathan,andMahajan,2005).Thesegoalsaffectchoiceofchannelmodesasfollows. A convenience orientation is a distinct consumption strategy, definedas “seeking to accomplish a task in the shortest timewith the least expenditure ofenergy,” and is related to a person’s general preference for convenient goods andservices,possiblyatahighercost.Intheretailcontext,conveniencehasbeendefinedas consumers’ time and effort perceptions related to buying or using products orservices, and is comprised of decision, access, transaction, benefit andpost-benefitconveniences.Ateachstageofordering,paymentandfulfillment,aconsumer’schoiceof a particular channel depends on the tradeoffs they arewilling tomake betweenthe time and effort needed to complete each process in the channel, which variesover shoppingoccasionsandacrossconsumers.Theadditionof remoteordeliverychannelslikecatalogsorwebsitesbyconventionalretailersisaresponsetotheneeds



ofconsumerswithhigheffortcostswhoresenttheinconvenienceoftravelingtothestore.Incontrast,theadditionofphysicalstoresorstore-basedaffiliatesbyInternet-onlyretailersisaresponsetoreducetimecostsassociatedwithwaitingforproductdelivery (positive time discounting).Hence,when consumers are heterogeneous intheirdesireforshoppingconvenience,consumershavedifferentunit travelcostsorunittimecosts,suggestingthefollowinghypotheses:

H2a. Consumers with high effort costs are more likely to use the online channel compared to cross-channels or physical store channel.

H2b. Consumers with high time costs are equally likely to use the physical store or cross-channel (order online and pick-up in store) and are less likely to use the online channel.

Self-perceptiontheorysuggeststhatindividualsexaminetheirownbehaviorand its attendant circumstances to determine their attitudes towards themselves.Thisneedtomaintainpositiveself-impressions,characterizedasthe“needforself-enhancement,”includesthetendencytoperceivegreatercontroloverone’senvironmentthanactuallyexists.Ashoppingexperiencecanprovideconsumerswithanopportunitytoaffirmcertainpositivetraitslikeexpertiseandthrift. Self-affirmation of expertise refers to the consumer’s perception of beingempowered to skillfully select the best product from a choice set (Brucks, 1985).Suchsubjectiveexpertise ismore likely togive themconfidence in theirdecisions,andcanpermit them to takecredit andfind satisfactionwith them (Brucks,1985).Hence, consumers seeking self-affirmationof expertisewill prefer the channel thatprovidesthegreatestopportunitytoexercisetheirperceivedexpertise.Furtherchannelintegrationreducesconsumersearchcostsacrosschannels,andthegreaterconfidencein search decisions can attenuate the consumer’s desire to search for competitiveofferings.Hence,wesuggestthefollowinghypotheses:

H3a. Consumers seeking self-affirmation of expertise will prefer a cross-channel retailer over a multiple channel retailer.

H3b. Consumers seeking high self-affirmation needs of expertise are likely to search for fewer competitive offerings when patronizing a cross-channel retailer compared to those patronizing a multi-channel retailer.

Thriftisthetendencytoseektoacquireproductsorservicesinexpensively,andisanaffirmationthatonehasbeencarefulinspendingmoney.Onlinechannelsgenerallyoffergreaterpotentialforpricecomparisonsandforfindingbargainsthanphysicalstores.However,thisincreasedperceptionofthriftonlinecomparedtophysicalstorescanbenegatedinpracticewith theshippingandhandlingchargesforonlinepurchases.Allowingconsumerstosearchforpricebargainsacrossmultiplechannelsandtocherry-pickproductstheywishtobuyacrosschannelsincreasestheperceptionofthriftamongconsumerswhobuyfromcross-channelretailers,ascomparedtothose


thatrestrictconsumerstocompletetransactionsinoneofthemultiplechannelsusedbytheretailer.Inthiscase,ratherthanobjectivesavings,itistheperceptionofsavingsthatdrivesself-affirmationofthrift.Sinceconsumerperceptionofthriftispositivelyassociatedwiththeextentofpre-purchasepricesearch,wehypothesizethat:

H4. Consumers with high self-affirmation needs of thrift are likely to search for fewer competitive offerings when patronizing a cross-channel retailer compared to those patronizing a multichannel retailer.

Impact of Cross-channel Integration and Separability on Shopping Outcomes

Inthecross-channelretailingcontext,theseparabilityoforderingandpaymentstages is a strategic decisionwith implications for the behavioral outcomes of theshopping process and consequently, retailer profitability.Retailerswith bricks-and-mortar stores that follow the localized e-commercemodel encourage consumers toviewproductinformation,orderproductsthroughthewebsite(orprintcatalog)andpick themup at the local store.On theother hand, some retailers offerweb-basedkiosksatstoresthatallowconsumerstoviewproductinformationandorderproductsthatarenotstockedinstoresforstoreorhomedelivery.In thiscase, theconsumerbenefitsfromanincreaseintheavailableassortmentsize.Ineithercase,cross-channelshopping temporally separates the order placement and product acquisition stages,which presents challenges and opportunities not encountered when the shoppingprocessiscompletedwithinthesamechannel(onlineoroffline). Cross-channelseparabilityoforderingandpaymentoptionsismanifestedintwoways:

• retailersmayallowonlineconsumerstopickuptheirordersatastore,buttheyrequirethattheyorderandpayfortheproductonline(orderingandpaymentsimultaneous);or

• retailersmay allow online consumers to order a product online, but allowpaymentandpickupatthestore(orderingandpaymentseparable).

The separability of ordering and payment represents an additional serviceoutputofferedbytheretailerandadditionalcontactpointswiththecustomer,whichcanleadtohigherretailersatisfactioncomparedtocompetingcross-channelretailersthatrequiresimultaneousorderingandpayment.Thissuggests:

H5a. Satisfaction with retailer will be higher for separable ordering and payment cross-channel retailer compared to simultaneous ordering and payment cross-channel retailer.

H5b. Satisfaction with retailer will be higher for simultaneous ordering and payment cross-channel retailer compared to multi-channel retailer.

Ifonlineconsumerssimplyvisitstorestopickupproductsorderedonline,the



costofmerchandisingandcustomerserviceatthestoreiswasted.Ifinstead,onlineconsumersmake“unplanned”orimpulsepurchasesatthestoreinadditiontopickinguponlineorders,thecostofmerchandisingandcustomerservicecanbejustified.Thetemporalseparationbetweenorderplacementandproductacquisitioncanbeexaminedinthecontextofatwo-stagedecisionprocessinbehavioraltheory(Albaetal.,1997).Whenconsumersprepay(i.e.,whenpaymentandpick-uparesimultaneous),merchantsreduce the likelihood that a customerwill simply abandon the purchase.However,research in consumer goal-setting suggests that “mere ownership” or possessioneffects(SenandJohnson,1997)areactivatedwithoutactualpossessionoftheproduct,andconsumersaremorelikelytohave“spent”theirbudgetandarelesslikelytomakeimpulsepurchaseswithprepayment.Therefore, theyaremore likely todefine theirgoalsintermsofproductpick-upalone,andtheyarelesslikelytomakeunplannedpurchasesatthestore(SomanandLam,2002).Ontheotherhand,notpayingatthetimeoforderplacement(i.e.,separablepaymentandpick-up)increasesincidenceofno-showsatthestores,butismorelikelytoleadtoimpulsepurchasesatthestorewhenanonlinepurchaseispickedup.Consumersshoppingatphysicalstoresofmulti-channelretailers are likely to have higher unplanned purchases compared to simultaneousorderingandpaymentwithcross-channelretailersbecausemerchandisingandstoreatmosphericshavebeenshowntoinduceimpulsepurchases(Kotler,1974).Hence:

H6a. Unplanned purchases will be higher for separable ordering and payment cross-channel retailers compared to simultaneous ordering and payment cross-channel retailers.

H6b. Unplanned purchases will be higher for multi-channel retailers compared to simultaneous ordering and payment cross-channel retailers.

H6c. Unplanned purchases will be higher for separable ordering and payment cross-channel retailers compared to a multi-channel retailer.

An importantconsequenceofafirm’schannel separabilityoforderingandpayment stages on consumer behavior is free-riding.Consumers can enjoy a “freeride”whenafirmcannotfeasiblychargeseparatelyforitsservices,suchasdisplayingproductinformationandacceptingreturns,andwhenitcannotdistinguishfree-ridersfromothercustomers(CarltonandChevalier,2001).Bricks-and-mortarstoresfaceadilemmaindefiningtherolestoresplayinsupportingcross-channelactivitiesinthiscase,particularlythenecessaryeffortrequiredbysalespeopleandthemerchandisingnecessary in stores. Many cross-channel retailers also testify to internal conflictsresultingfromdifferentperceptionsofthemagnitudeoffree-ridingacrossaretailer’schannels,evenifasinglecompanyownsallofthetouchpoints(TangandXing,2001).Inthefollowingsections,weclassifyfree-ridersasonlythoseconsumerswhoabandonpurchasesororders(orderedonlinetobepickedupatlocalstore)aftertheyswitchchannels,withnotime,effortorfinancialcoststothem. Theimplicationsoffree-ridingdifferforcross-channelandmultiplechannel


retailers.Physicalstorescannotchargeforstandardpre-saleorpost-saleserviceswithanentrancefeeorshippingcharges;therefore,thepre-saleandpost-saleservicesthatthephysicalstoresprovideeffectivelybecomepublicgoods.Multiplechannelretailerscandiscouragefree-ridingbehavioracrosschannelsforpre-saleservicesbycreatingdifferencesinassortments,pricesandpromotionsavailableinstoresandthroughremotechannels.Theycanalsorestricttheuseofpost-saleservicesthroughrestrictivereturnpolicies,butcross-channelretailerscannot.Hence,theconsequencesoffree-ridingaremoresevereforthephysicalstoresofcross-channelretailers,astheyhavetomaintainconsistencyinpricesandproductassortment,andallowreturnsandordercancellationsacrosschannels.Itshouldbenotedthatfree-ridingintheotherdirection(i.e.,orderin-storeandhaveitdeliveredhome)isnotassevereaproblem,primarilybecausethecostsofonlineshopsarelargelyfixed,whilethecostsoftraditionalretailersarelargelydependentonthenumberofvisitorstotheirstores(CarltonandChevalier,2001).Also,consumers bear the time and effort costs of physically going to the store andbeartheshippingcostsfordeliverywhichcannotberecoupedthroughreturnsatstoreoronline,sothereislowerincentiveforfrivolousorderingandpurchaseabandonment.Thissuggests:

H7a. Intent to return or abandon purchases will be higher at separable ordering and payment cross-channel retailers compared to multichannel retailers.

H7b. Intent to return or abandon purchases will be higher at separable ordering and payment cross-channel retailers compared to simultaneous ordering and payment cross-channel retailers.

Inacompetitivemarket,integratedchannelstrategiesmayreduceconsumers’propensitiestoconsolidatepurchaseswitharetailer.Aschannelsmultiply,theretailer’smarketcoverageincreases.Itleadstoadecreaseinthecustomers’informationsearchcostsandanincreaseinpricetransparency,sincefirmshavetomaintainconsistencyinpricesacrosschannels.Theincreasedcompetitionmayleadtolowerprices,higherpriceelasticities,frequentpricechanges,andnarrowpricedispersion—classicsymptomsofmarketcompetition(BrynjolfssonandSmith,2000;TangandXing,2001).Allofthesefactorsdecreasecustomerswitchingcosts,whileatthesametimeincreasingcustomermotivationtodistributepurchasesacrossfirms,andenablescustomerstocherry-pickthebestoffersavailableifcompetingfirmsengageinpricecompetition.Thiscanleadtoadecreaseinordersizesandanerosionincustomerloyalty.Thiseffectwillbemorepronouncedforseparableorderingandpaymentretailers,sincethereis lowpenaltyfordefaultscomparedtosimultaneousorderingandpaymentretailers.Thisisbecauseconsumersmustprepayandmayberequiredtoinvestthetimeandefforttovisitastoreorwebsiteiftheywishtocanceltheirorder.Therefore,wehypothesizethat:

H8. Purchase order sizes will be lower at separable ordering and payment cross-channel retailers compared to simultaneous ordering and payment cross-channel retailers.



Overview of Empirical Context and Methodology

We used a multiple method approach to examine the motivations drivingconsumeruseofcross-channelsystemsforpurchasetransactions,andtheimpactofthe separability of cross-channel ordering and payment policies on the behavioraloutcomesoftheconsumershoppingprocess.Testingourhypothesesonhowshoppingmotivations drive self-selectivity of channels during purchase transactions in real-world commercial stores is difficult, as store managers are reluctant to interceptconsumerspriortoenteringstores,andtherearesignificantdifferencesbetweenstoresin assortment, price and service.These drawbacks can bias our results and lead tomisleadinginferences. With this inmind, we collected data from a campus bookstore chain thathad introduced“orderonline andpickup in-store” (OOPS) at oneof its locations,thus offering us an opportunity to examine our hypotheses (H1a-H4) on shoppingmotivationsinaquasi-controlledenvironment(Study1).Sinceprices,assortmentandservicearesimilaracrossstores for this retailchain,wecancontrol for factorsnotaccountedinouranalyses.However,wecannottestourhypothesesonseparabilityoforderingandpayment,sincethecross-channelonlyofferedthesimultaneousorderandpaymentoption,aspre-paymentwasnecessaryforOOPS. WeexaminedhypothesesH5-H8onpurchaseoutcomesduetopre-paymentpolicies with data collected from three commercial stores (Study 2). To identifyeconomic sectors where cross-channel systems have gained acceptance, and firmswhereacriticalmassofconsumersaremakingcross-channelpurchases(forStudies1and2),weconductedastudyof theadoptionandintegrationofmultiplechannelstrategiesinseveralsectorsoftheretailingindustry(Study3).

Study 1: Identifying Consumer Motivations for Cross-Channel Usage for Purchase Transactions

Procedure

Thisstudywasconductedwiththecooperationoftwocampusbookstoresfromthesamenortheasternuniversity,located40milesapart.BothbookstoresAandBsoldproductsthroughbricks-and-mortarstoresoncampusandtheironlinewebsite.Withbothonlinestores,consumerscanorder,payonline,andhavetheproductsshippedforafee.However,onlybookstoreAallowsonlineconsumerstoorderorpayforbooksonlineandpickupatthestore.Therewereatleasttwootherbookstoreswithinthevicinityofthecampus(withina1mileradius)thatonlyhadphysicalstores. Consumersvisitingthephysicalstoresandthewebsitesforthetwobookstoreswere randomly solicited for participation in the study by student researchers atentrancesofthephysicalstoresandthroughclickablepop-upsonhomepagesatonlinestores.Furthermore,theydidnothavetomakeapurchaseinordertoparticipateinthestudy.Ourdatacollectionmethodinvolvedtwodistinctstageswhichweredescribedtoparticipantsalongwiththeincentiveof$10forcompletingbothstagesofthestudy,and


subjectswereinformedthatparticipationwouldrequire10minutespriortoenteringthestoreand20-30minutesattheendoftheirshoppingvisit. Inthefirststageatthestartoftheshoppingtrip,shoppersfilledoutasurvey(onpaperatphysicalstore,andonlineatadedicatedwebpage).Afterthisfirststagewascompleted,shoppersweregivenarespondentIDtotracktheirinformationacrossall threestages,andtoqualifyfor thesurveyincentiveandasweepstakesdrawing.Therespondentsproceededtoshop,andaftertheyfinishedshoppingtheyproceededtocompletethesecondstageofthestudy. Inthephysicalstoressubjectscompletedthesecondstageofthestudyinthelobbyoutsidetheexit.Fortheonlinestores,apop-underinvitedsubjectstoclickonthelinktoanswerquestionsforthesecondstageofthestudywhentheyjumpedtovisitanotherwebsiteorclosedtheirbrowser.Inthissecondstage(attheendoftheshoppingtrip)shopperssubmittedtheirshoppingreceipts.Theshoppingreceiptswerephotocopiedand the respondent’s IDwasnotedon thecopiesby researcherswhilesubjectsfilledoutasurveyusingthesamemodeasinthefirststage.Shoppingreceiptsforonlineconsumerswerecollectedelectronicallybyemailsubmission.Respondentswerethankedfortheirparticipationandaskedtosignaparticipationform,afterwhichtheyweregiventhecashincentive.

Variables and Measures

In the first stage, respondents provided demographic information: age,householdincome,householdsize,gender,employmentstatus,annualexpenditureinthecategory,whether theylivedoncampus,cityofresidence(tocalculatedistancetostores),andpropensitytousetheInternetforpurchaseandshopping(informationcollectionandtransaction)purposes.Inaddition,subjectsprovidedthefollowingpre-purchasebehaviorinformation:(a)shoppinglist(todetermineplannedpurchases),(b)numberofitemsonshoppinglistpurchasedbefore(onlineoroffline),and(c)numberofstoresorwebsitestheyvisitedtosearchforinformationpriortocurrentvisit(searchforcompetitiveofferings).AtbookstoreA,storesubjectsalso indicated if theyhadcometopickupanorderplacedonline. Inthesecondstage,thefollowinginformationwascollectedfromshoppingreceipts1: (a) totalpurchaseamount indollars, (b)numberof items in theshoppinglist(collectedinfirststage)thatwerepurchased(number of planned purchases),(c)totalplannedpurchaseamountindollars,(d)numberofitemspurchasedthatwerenotmentionedintheshoppinglistinfirststage,(e)totalamountofunplannedpurchaseindollars,(f)numberofitemsboughtonpromotionandthepurchaseamountindollars,and (g)atbookstoreAnumberof itemsordered /paidonline thatwerepickedup.Consumerswhodidnotmakeanypurchaseonlyansweredthesurveyquestionsandrecordedzeropurchaseamountsinthesurvey. Thefollowingattitudinalmeasuresandmeasuresofshoppingorientationwerecollectedinthesurveyaswell:(a)retailer satisfaction(5-pointLikertscale),(b)multi-itemscaleforconvenience time and effort orientation(Morganosky1986),(c)multi-1Names,loyaltycardnumbers,creditcardinformationandotheridentificationinformationwereblackenedoutduetosecurityandprivacyconcerns.



itemscaleforself-affirmation of search expertise(PutrevuandRatchford1997),(d)multi-itemscaleforself-affirmation of thrift(Urbanyetal.,1996),and(d)likelihoodofabandoningorder(atcross-channelretailers)orreturningproductsbought(atmulti-channel retailers)during theshoppingvisit.For theshoppingorientationmeasures,scores on all items in a scale were summed and standardized with respect to themean.Then,amediansplitwasusedtodetermineiftheshopperwashighorlowonaparticularorientation.

Results and Discussion

A total of 2,459 respondents agreed to participate in the study, with 412completingbothstagesofthestudy(16.7%responserate).Themajorityofshopperswere female (54%), employedmore than20ormorehours perweek (87%),well-educated(averagingmorethanthreeyearsofcollegeeducation),andlivingoff-campus,asshowninTable1.TheaverageannualexpenditureforBooks,Computer,SoftwareandEducationalProductswas $1578,which represents roughly 9%of the averageannualpre-tax income, including scholarships andalimony,perhouseholdmemberinthesample.Ourresultsshowthatthedistancetotheclosestcampusbookstoreislessthantothefarthestoneforrespondentsinoursample,butthatthedifferenceisnotstatisticallysignificant(p<0.1).This isprobablybecause thepart-timestudentpopulationattheuniversityisrelativelylarge.Inaddition,manystudentstakeclassesonbothcampusesasbotharelocatedonamajorpublicrailwaysystem,andtheyarealsousedtocommutinglongdistancestowork. Furtherresultsfromthepre-purchasesurveyofshoppers,showninTable2,indicatethatcross-channelshoppersdonotdiffersignificantlyinthenumberofitemsontheirshoppinglistascomparedtosingle-channelweborstoreshoppers(p>0.05).Atwo-stepdataanalysisprocedurewasperformedtotestourhypotheses.First,aone-wayANOVAwasusedtotestwhethertherearesignificantdifferencesinthestatisticalmeansforshoppersatcross-channelvs.multi-channelretailers,andbetweencross-channel,web and store shoppers. If significant differences exist across themeans,pairwise comparisons of the means were conducted to ascertain where significantdifferenceslie.

Do Shopping Orientations Drive Cross-Channel Usage?

As we hypothesized, Table 2 indicates that average retailer satisfactionis significantly higher for the cross-channel retailer (mean = 4.04 , s.d. = 0.9 ) ascomparedtothemulti-channelretailer(mean=3.8,s.d.=1.1),irrespectiveofwhethershoppersattheretailerusedasinglechanneloracross-channelsystemfortransactions(p<0.01),which supportsH1a.Contrary toourhypothesisH1b, however,overallpurchaseincidenceatthecross-channelretailerisnotsignificantlyhigherthanthatofthemulti-channelretailer(p>0.05).Hence,H1bisnotsupported.However,wefindthat the incidenceofpurchasesat thecross-channel retailerwebsite is significantlyhigherthanforthemulti-channelretailer.Thisissuewarrantscloserattentioninfuture


research,intermsofwhetherthecapacityforcross-channeltransactionsincreasestrustandreducesshoppingrisksattheretailerwebsite. Consumerswithhigheffortcoststhatareconvenience-orientedwithrespecttoeffortarenotmorelikelytousetheonlinechannelascomparedtocross-channelorphysicalstorechannel(p>0.1).Therefore,H2aisnotsupported.Thisresultmightbeduetothelownumberofrespondentscharacterizedtobehighineffortcostsinthesurvey,ortothefactthatmostshoppersdonotperceivethevisittothephysicalstoretobeasignificanteffortsincetheycanscheduletheirshoppingtripsaroundtheirclassschedule.Incontrast,respondentswithhightimecostsaresignificantlymorelikelytousethecross-channelortheonlinechannelthanthephysicalstorechannel(p<0.01),thussupportingH2b. Our analysis indicates that consumerswith high self-affirmative needs forexpertisearenotsignificantlymorelikelytochooseacross-channelretailercomparedtomulti-channel retailer;hence,H3a isnotsupported.Thismaybeacharacteristicof the product category; since books and software are standardizedproducts, thereisnobrandchoiceinvolved,onlychoiceoftheretailerandpurchaseprice.Wefindthatstore,webandcross-channelshoppersseekingahighlevelofself-affirmationofexpertiseinoursamplediffersignificantlyfromeachotherinthenumberofwebsitesorstorestheyvisitpriortotheircurrentshoppingoccasion,whichsupportshypothesisH3b.Thenumberofcompetitivewebsitesandstoresvisitedbyrespondentswithhighself-affirmationneedsofthriftatacross-channelretailer(mean=7.38,s.d.=1.3)issignificantly lower (p<0.01) than thosewho transactwithamulti-channel retailer(mean=9.29,s.d.=1.8)thussupportingH4.Further,storeandwebshopperssearch

Table1.Summary Statistics on Shopper Respondents.Respondent Profile

Female(%) 54

Averageage(years) 33

Householdincome/member(US$) 11,500-23,000

Campusresident(%) 12.3

Employmentstatus,Fulltime(%) 29

Employmentstatus,Parttime(%) 58

Employmentstatus,Unemployed(%) 13

Averageyearsofcollegeeducation 3.4

Annualexpenditureincategory(US$) 456-3,200

Averagehoursspentshoppingeachweek 3.28

AveragenumberofInternetpurchasesinlast6months 2.79

AverageweeklyInternetuseforshoppingpurposes(hours) 1.3

Averagedistancetoclosestcampusstore(miles) 11.8

Averagedistancetofarthestcampusstore(miles) 17.3

Numberofrespondents 412



Table2. Summary Statistics on Store, Web and Cross-Channel Shoppers at Cross-Channel (Bookstore A) and Multi-channel (Bookstore B) Retailers.

Bookstore BookstoreA BookstoreB

Transaction Channel Used by Shopper Store Web Cross-channel

Store Web

No.ofrespondents 76 62 106 97 71

Pre-Purchase Behavior

Avg.numberofitemsonshoppinglist 8.1 10.2 9.3 7.3 10.7

Avg.numberofitemsonshoppinglistboughtbefore 2.0 5.3 3.8 2.4 4.1

Avg.numberofwebsitesvisitedpriortovisit 1.3 2.2 1.9 1.9 2.3

Avg.numberofstoresvisitedpriortoshoppingvisit 1.1 0.59 0.12 0.6 1.3

Avg.numberofcompetitiveoptionssearcheda 2.4 2.79 2.02 2.5 3.6

Shopping Orientations Driving Channel Choice

Convenienceorientedw.r.t.effort(%,76)(H2a:notsupported)

0.22 0.25 0.14 0.20 0.18

Convenienceorientedw.r.t.time(%,141)a(H2b:supported)

0.23 0.09 0.33 0.29 0.06

Self-affirmationofexpertise(%,69)(H3a:notsupported,H3b:supported)

0.11 0.06 0.09 0.16 0.30

Self-affirmationofthrift(%,126)b(H4:supported)

0.15 0.17 0.31 0.18 0.19

Avg.#ofwebsites&storesvisitedbyhighthriftb(H4:supported)

6.42 7.20 5.00 7.95 8.05

Avg.#ofwebsites&storesvisitedbylowthrift 1.1 0.5 0.3 0.8 1.3

Purchase Outcomes

RetailerSatisfactionb(H1a:supported)

3.9 3.8 4.3 3.8 3.7

PurchaseIncidence(H1b:notsupported)

41 13 38 46 8

UnplannedPurchaseAmount($)a,b 14.71 2.33 13.94 8.11 4.16

PurchaseReturn/AbandonmentIntenta 1.9 1.2 2.3 2.1 1.3

PurchaseOrderSizeb 89.76 214 284.17 98.71 149

aSignificantdifferences(p<0.05)foundforthismeasureforcross-channelandstorevs.webshoppers.bSignificantdifferences(p<0.05)foundforthismeasureforcross-channelvs.multi-channelretailer.


significantly more competitive options than cross-channel shoppers (p < 0.05) asshowninTable2andgraphicallyinFigure1.Therefore,wefindthatcross-channelintegrationbyaretailerdecreasesprice-basedsearchbythriftyconsumers,perhapsbycreatingtheperceptionthatbothonlineandofflinecompetitionleadstolowerprices.

Other findings

Ouranalysisshowsthatunplannedpurchaseamountsaresignificantlyhigherat the cross-channel retailer compared to themulti-channel retailer (p < 0.05), andsignificantlyhigherin-store(notethatwecombinedstoreandcross-channelunplannedpurchaseamounts)thanatawebsite(p<0.01).Thisconclusionhasbeensupportedbyother research in the literature,whichhas indicated thatonlineactivitiesdonotcannibalize offline sales (Biyalogorsky andNaik, 2003).However,wedofind thatpurchaseabandonmentandreturnintentionsarestatisticallyhigheratcross-channelretailers as compared tomulti-channel retailers.Whenwe analyze purchase returnintentionsbytransactionchannelmode,wefindthatreturnintentionsaremarginallyhigher(p<0.1)forinstorepurchasesascomparedtopurchasesonwebsites.Furtherpost-hoc analyses indicate that high-thrift consumers in cross-channel stores aresignificantlymorelikelytoreturn/abandonpurchases(mean=3.1,s.d.=1.4)comparedtothoseatmulti-channelretailers(mean=1.8,s.d.=0.8).Howeverthedifferencein

0

1

2

3

4

5

6

7

8

9

10

CC-Store CC-Web Cross-channel MC-Store MC-Web

Figure1.Competitive Options Searched by Channel Choice and Thrift Level (Pre-Purchase).

Channel Option

Com

petit

ive

Stor

es a

nd W

ebsi

tes

Sear

ched

Av. # websites visited

Av. # stores visited

Av. # websites & stores visited by high thrift

Av. # websites & stores visited by low thrift



meansisnotsignificantforlowthriftconsumers(mean=2.1,s.d.=0.9versusmean= 1.2, s.d. = 0.4, respectively). Purchase order amounts are significantly higher atcross-channelretailerscomparedtomulti-channelretailers(p <0.01),butdonotdiffersignificantlybytransactionchannel. Thesefindingsmustbeinterpretedinthecontextofthemarketforstandardizedproducts like textbooks, software and computer equipment, and a captive shopperpopulation –mostly students.However, our findings do not suffer from purchaserbias, and we are able to determine retailer choice and purchase behavior acrossthe population of purchasers and non-purchasers to obtain an accuratemeasure ofunplannedpurchases.

Study 2: Does Prepayment (Non-separability of ordering and payment) Improve Purchase Outcomes in Cross-Channel Retailing?

Procedure

Thisstudywasconductedwiththecooperationofthreecommercialstores(X,YandZ)sellingspecialtyconsumerelectronicsproductswithina55mileradiusofeachotherinthenortheasternUSA.Allsellproductsthroughbothbricks-and-mortarstoresandwebsites,andconsumerscanhaveproductsshippedforafee.StoreZisamulti-channelretailer.StoresXandYallowcross-channeltransactions(OOPS),butonlystoreXrequiredconsumerstopre-payforOOPSwithsimultaneousorderingandpayment. Asdiscussedbefore,wecouldonlyinterceptandcollectdatafromcustomersaftertheycompletedtheirpurchasesandleftthestore.Sincewecouldnotcollectdatafromtheretailers’onlineconsumers,ourmeasuresformulti-channelconsumersonlyapplytoconsumerswhomakepurchasesatthestores.Forcross-channelconsumers,wecollecteddataforonlythosecustomerswhohadorderedproductsonlineearlier,andhadcometothestoreforpick-up.Therefore,allrespondentsinoursamplehavepurchasedorpickedupatleastoneitemduringtheirtriptothestore,leadingtopurchaserbias. Further,we had to limit our data collection time to 10minutes per customerbecauseoftrafficconcerns,sowecouldnotcollectanypre-purchaseinformationorshoppingorientationinformationasinStudy1.Afterreadingadescriptionofthestudy,eachparticipantwas assigned a respondent ID.Wephotocopied their receipts2 andparticipantsmarkedself-reportedunplannedpurchasesontheirreceipts.Toincreaseparticipationrates,participantsforthissurveywereofferedanentrytoasweepstakesdrawingforone$100giftcard(totalof3cards,oneforeachstore)inreturnforsharingtheirshoppingreceiptsandansweringsurveyquestions.

Variables and Measures

The following informationwas collected from shopping receipts: (a) totalpurchaseamountindollars,(b)purchaseamountofplannedpurchasesindollars,(c)

2Names,loyaltycardnumbers,creditcardinformationandotheridentificationinformationwereblackenedoutduetosecurityandprivacyconcerns.


total amountofunplannedpurchases indollars, and (d)anypurchasecancellationsandproductreturns.Thefollowingattitudinalmeasureswerereportedbyretailersinthesurvey:(a)retailersatisfaction(5-pointLikertscale),(b)intenttoabandonorderatcross-channelretailersorreturnproductsboughtatmulti-channelretailersduringtheshoppingvisit,and(c)percentofannualcategoryexpendituresspentatthisretailer.ParticipantsprovideddemographicinformationsimilartoStudy1andweregivenaflyerwiththeirrespondentIDanddatesandtimesofthesweepstakesdrawing.


Atotalof239respondentsparticipatedinthestudy.Themajorityofshopperswere male (64%), employed full time (69%), and had relatively high householdincomes,asshowninTable3. Thefindingsoftheone-wayANOVAshowthatsignificantdifferencesexistwithretailersatisfactioninTable4.Consumersshoppingatacross-channelretailerthatdoesnotrequirepre-paymenttoorderonlineandpickupatthestorearesignificantlymoresatisfiedthanthoseatacross-channelretailerwithsimultaneousorderingandpaymentOOPS(p<0.05),thussupportingH5a.However,thereportedsatisfactionwith a simultaneous ordering and payment cross-channel retailer was statisticallysimilartothatofamulti-channelretailer(p>0.1),thusH5bisnotsupported. As results showed that significant differences existed in themean amountofunplannedpurchaseamountsacrossthethreegroups,pairwisecomparisonswereconducted.The results of this analysis show that unplanned purchase amounts aresignificantly higher (p < 0.05) at separable ordering and payment cross-channelretailers,ascomparedtosimultaneousorderingandpaymentcross-channelretailers,

Table3.Summary Statistics on Shoppers (Study 2).

Respondent Profile (Study 2)

Male(%) 64

AverageAge(years) 41

HouseholdIncome/permember(US$) 7,300-84,671

Employmentstatus,Fulltime(%) 69

Avg.yearsofcollegeeducation 1.4

Annualexpenditureincategory(US$) 69–15,678

Avg.hoursspentshoppingeachweek 1.28

Avg.noofInternetpurchasesinlast6months 4.1

Avg.weeklyInternetuseforshoppingpurposes(hours) 2.2

Avg.distancetostore(miles) 16

No.ofrespondents 239



whichsupportsH6a.Whilethemeanscoresonintentiontoreturnorabandonpurchasesaresimilar,itisthevariabilityinconsumerscoresforseparableorderingandpaymentretailersthatmakesthedifferenceinmeanssignificant.Further,unplannedpurchaseamountsatmulti-channelretailersaresignificantlyhigher than thatatsimultaneousorderingandpaymentcross-channelretailers,supportinghypothesisH6b.However,H6c is not supported by our data, as unplanned purchase amounts are statisticallysimilaratseparableorderingandpaymentcross-channelandmulti-channelretailers(p >0.1). Contrarytoourhypotheses,theintentiontoreturnorabandonpurchasesisnotsignificantlyhigheratseparableorderingandpaymentretailerscomparedtoamulti-channelretailers(H7aisnotsupported)orasimultaneousorderingandpaymentcross-channel retailer (H7b is not supported).From this, itwould appear that consumersdonot appear tobemaking frivolouspurchasesonly to return them later.The factthatmost consumer electronics retailers charge a 15% restocking fee for returns ifthepackagingwasopenedmaybeadeterrenttomakingfrivolouspurchases.Further,purchaseorder sizes are significantlyhigher at simultaneousorderingandpaymentcross-channel retailers as compared to separable ordering and payment retailers (p <0.01),supportingH8.Inthereal-worldshoppingcontextofconsumerelectronics,the profitability of retailers is expected to be higher for simultaneousordering andpaymentretailersthatrequireconsumerstoprepaythanthoseseparableorderingandpaymentsystemswhodon’trequireconsumerstoprepay.

Table4.Purchase Outcomes Across Separable, Simultaneous Ordering and Payment Cross-Channel Retailers and Multi-channel Retailers.

Level of Channel Integration

Cross channel (simultaneous), OOPS Prepay

Cross channel (separable),

OOPS No prepay

Multichannel Store

Prepay vs. N. Prepay

N. Prepay vs. MC

Mean s.d. Mean s.d. Mean s.d. t t

Avg.RetailerSatisfaction(H5b:n.s.)

3.18 0.9 3.69 1.2 3.31 1.1 -3.048(H5:s)

2.087

UnplannedPurchaseAmount($;H6b:s)

57.79 0.6 58.94 3.1 59.42 0.8 -3.258(H6a:s)

-1.334(H6c:n.s.)

IntentiontoReturn 1.7 0.7 1.9 1.5 1.87 0.4 -1.082(H7a:n.s.)

0.172(H7b:n.s.)

PurchaseOrderSize($)

(H8:supported)

235.86 10.9 201.58 52.4 198.8 37.1 5.7300 0.374

No.ofRespondents(239)

80 0.9 81 1.4 79 1.1

%usingOOPS 12 19 0

RetailersinData X Y Z

n.s.:notsupported.s:supported


Study 3: Industry Usage of Multiple Independent and Integrated Channels

Procedure

Earlier researchhas shown that retailers differ in their adoption andusageofmultiple distribution channels (Lee andGrewal, 2004). Therefore, a systematicinvestigationisneededtocharacterizethelevelofheterogeneityacrossfirmsintheintegration of customer-facing functions among multi-channel retailers: ordering,payment and fulfillment processes. Such structural differences between differentsectors of the retail industrymight drivemultiple channel use and integration.Forthisindustry-levelanalysis,weusedtheCOMPUSTATdatabasetoidentifyfirmsandcollectpubliclyavailableinformation,followedbyacombinationofwebandin-personsurveysofstrategicplanningandmarketingdirectorsorvice-presidentsobtainedfromseveralonlinedatabasestocollectinformationonintegrationpolicieswhicharenotpubliclyavailable.

Respondents

We drew the sample of retailer firms for this study primarily from theCOMPUSTATdatabase,supplementedwithothersourcesofdata.TheCOMPUSTATdatabaserecordsforfirmswithStandardIndustrialClassification(SIC)codes53(generalmerchandise),54(foodstores),56(apparelandaccessories),57(homefurnitureandfurnishings),and59 (non-store retailers) include291retailers.Weusedahistoricalapproach to data collection (Golder, 2000) that involved a careful examination ofrelevantpublishedrecords.WefollowedtherecommendationsofGolder(2000),andevaluatedthecriticalityofarchivaldataobtainedfromatleasttwodifferentsourcestoensurethatatleastonedatasourcewasneutral,thatalldatasourceswerereliable,andthatthedatasourceswereindependent.Wecarriedoutastructuredcontentanalysisof company annual reports, press releases, and articles available on LexisNexis,BusinessWeek,The Economist,Fortune,Forbes,andThe Wall Street Journal,aswellas respective companyWeb sites, to identify the order inwhich a retailer adopteddifferent channels, the product lines carried or dropped in a channel, the level ofintegrationofeachchannelwithallothers,andtheownershipcharacteristicsof thedifferentchannels(whollyowned,independententity,inpartnership,inalliance). Notethatthekeyfocusofthisresearchistounderstandstrategicdecisionstaken by the firm towards use and integration of multiple channels. Since suchdecisionsaremadeatthecorporatelevel3andaredrivenbymanagers’perceptionsofthebusinessenvironment,ouranalysisisattheleveloftheretailingfirmratherthanforindividualstores.Wesolicitedresponsesfrommultiplemanagerswithineachofthesefirmstoincreasethenumberofrepresentativesandtoreflecttheparticipationofmultipleentitieswthinchannelintegrationdecision-making.Arandomsampleof3Ourdataindicatesthatwhileindividualstoremanagersprovidecriticalinformationinputswhentopmanage-mentevaluatechannelintegrationalternatives,theydonothavedecision-makingauthority.Mostreceivestraightdirectionsfromheadquartersorparentorganizationsandareonlyresponsibleforcoordinatingandimplementingthestrategy.



strategic planning managers, marketing directors and marketing vice-presidents ofretailingfirmsincludedintheSICcategoriesmentionedearlierwascollectedfromacommercialdatabaseproviderintheUS.Eachexecutivewasthencontactedbyemailandinvitedtoparticipateinanonlinesurvey,andtheURLfortheonlinesurvey(http://andromeda.rutgers.edu/~patrali/multi/step1.php?id=xxxx) was sent immediatelyto thosewho agreed to participate.Each respondentwas assigned an identificationnumber(usedinplaceofthe“xxxx”intheURL)whichwasusedtotrackresponsesacrossseveralpartsofthesurvey.Asanincentivetoparticipate,managersweretoldthattheywouldreceiveareportonthestateofmultiplechanneluseandintegrationin the retail industry,andwouldqualify toenterasweepstakesdrawingfora$150giftcard.Tobalancetheneedsofdetaileddataonchannelintegrationpolicieswiththedemandsofexecutivetimeinansweringlongsurveys,informationcollectionintheonlinesurveywaslimitedtomanagerialperceptionsofthedirectantecedentsandconsequencesofmultiplechannelintegration.Toincreasetheresponserate,twoemailremindersweresenttwoweeksaparttothosewhoagreedtoparticipatebuthadnotyetansweredthesurvey.

Questionnaire Development and Testing

Sinceretailfirmsdifferinthenumberofchannelstheyuseandthelevelofintegration between them,we developed an online survey that allowed conditionaljumpsacrossseveralpartsofthesurveybasedonresponsestocertainkeyquestions.Thisreducedthetotaltimerequiredtocompletethesurveywhilemaintainingrelevanceandinteresttothemanager’sfirm.AllrespondentsansweredpartsA(typesofchannelsused), E (organization and customer characteristics), and F (contact informationandwillingness to participate in in-depth interviews) of our six-part questionnaire.Respondentsfromretailfirmsthatusebricks-and-mortarstoresandwebsitestoselltoconsumersalsoansweredpartB.ManagersofretailfirmsthatusephysicalstoresonlytoselltoconsumersansweredpartsC,andthosefromfirmsthatusewebsitesaloneforsalesansweredpartD.Datafromfirmsthatusephysicalstoresorwebsitesaloneestablishthebaselinemeasuresforthevariablesofinterestinourstudy. ThequestionnairewasdevelopedinEnglishandstandardpsychometricscaledevelopment procedures were followed. This questionnaire was pretested with 12managerswhose responseswerenot included in thefinalanalyses.Somequestionswererewordedandorderofquestionsalteredbasedontheirrecommendations.


Intotal,151respondentsfrom80firmsrespondedtothesurveyoutof1132executivesthatweresolicitedforparticipation.Theresponserateof13%wassimilartootherstudiesconductedwithretailexecutives. Table4liststhesummarystatisticsfortheconstructsofinterestinourstudy.Theanalysis indicates thatmost retailers (83%)startedoperationswithbricks-and-mortarstoresand89%haveretainedtheiroriginalchannels.Forty-five(56%)retailershavetwochannels,17%havethreechannelsand6%havemorethanthreechannels.


Thereisconsiderableheterogeneityamongmulti-channelretailersinhowtheyhaveintegratedchannelsandtheirlevelsofintegration.Twenty-oneretailersofferthe“orderonlinepickupin-store”(OOPS)featureattheirwebsiteand13havein-storekiosksthatconsumerscanusetohaveproductsdeliveredathome4. Most retailers (71%)usingOOPSreport that25%-50%of theirconsumersshopat both their stores andwebsite.However, only20%ofmultiple independentchannelretailersreportthatmorethan10%oftheirconsumersshopatboththeirstoresandwebsite.Onaverage,about25%ofonlinepurchasesareOOPSorders,withthosenotrequiringprepayment(separableorderingandpayment)reportingslightlyhigherproportions of OOPS orders (approximately 30%). On average, 10-25% of OOPSpurchasesareabandonedregardlessofwhetherprepaymentisrequiredornot,similartoourfindings.Surprisingly,only56%ofretailersthatofferOOPSacceptreturnsofitemsorderedonwebanddeliveredathome.Thissuggestsanimportantdisconnectbetweentheinferencesthatconsumersmaymakeaboutcross-channelretailerreturnpoliciesandtheirpoliciesinpractice.Thissuggeststhatthereispotentialforservicefailuresanddissatisfactionifconsumerswhousetheonlinechannelofcross-channelretailersbelievestoreswillacceptonlinepurchasesandstoresarenotequippedtodoso.Clearly,cross-channelfirms thatdonotacceptonlinereturnsshouldmake theirpoliciesvisibleandeducatetheironlinecustomersorbearcostsofmailingreturns. Retailersaremorelikelytohaveintegratedoperationsacrosstheirchannelsiftheycompletelyownalloftheirchannels(asindicatedbypublicrecords)andbelievethattheirstoreandweb-basedconsumersaresimilarintermsoffrequencyofvisits,averagedollarvalueandunitsboughtpertransaction.Further,managerswhobelievetheirstoresizesaresmallerbuthavelargerandtechnologicallysuperiorwebsitesthantheirclosestcompetitorsaremorelikelytohaveintegratedchannels.ThemajorityofOOPSretailers(61%)reportthatOOPScanbeacriticaladvantageovermulti-channelorsinglechannelretailers.

Influencing Practice

Byintegratingandmanagingmultiplechannelsasaholisticsystem,retailerscanexpectthateachchannelwillsupportandcomplementtheothers,whichwillleadto increased total sales (Brynjolfsson,Smith andHu,2003).Cross-channeloptionslike“orderonlineandpickupin-store”arebecomingacriticaldifferentiatingfactorfor retailers. Concerns about “bricks-and-mortar” stores merely becoming productpick-up counters for online customers plaguemany retailerswho have invested inmerchandisingandcustomer service.Our research shows,however, that theOOPSnotonlysucceedsinattractingonlineconsumerswithhightimecoststotheretailerbutalsooffersconvenience,andgreaterconfidenceandcontrolintheproductsearchprocessforstore-consumers.Retailersatisfactionishigherforcross-channelretailersas compared tomulti-channel retailers irrespective of the transaction channel usedby consumers. Furthermore, cross-channel customers are less likely to search forcompetitiveofferingsonlineorofflinethanmulti-channelcustomers.Cross-channel

4Pleasenotethatwedifferentiatein-storekiosksthatconsumerscanusetohaveproductsdeliveredfromem-ployeeusingtheircomputerstoorderproductsconsumersmaywanttobedeliveredtostore.



Table4.

Sum

mar

y St

atis

tics f

or R

etai

l Sec

tors

in S

tudy

3.

Ret

ail S

ecto

rA

ppar

elB

ksto

res

Con

sum

er E

lect

roni

csD

ept

Stor

esG

. Mer

chan

dise

O. S

uppl

ies

Gro

cery

Dat

a co

llect

ed fr

om P

ublic

Sou

rces

#C-Cpublicfirms

4912

219

1821

26

Store(%

)96

9988

100

100

90100

Online(%

)42

3276

3812

6814

Catalog(%

)48

2454

5619

8937

TotalR

evenue($B)

91.9

4.6

37.8

84.4

298.7

3.8

66

NetProfitM

argin(%

)6.3

0.54

3.2

3.4

3.4

3.7

-1

Dat

a C

olle

cted

from

Web

Sur

vey/

Inte

rvie

ws

#inSam

ple

165

142

1315

10

%salesfromstores

6458

7695

9282

94

%salesfromweb

1326

162

08

1

OOPS

03

80

24

4

WebKiosks

51

24

10

0

#yearssold@store

18.8

31.5

12.4

26.7

11.8

7.4

12.6

#mthssold@web

-18.5

61.5

8.4

16.8

43.8

9.1

RequirePre-pay

52

44

21

4


retailersthatdonotrequireprepaymentforOOPShavehighersatisfactionandmoreunplannedpurchasesthancross-channelretailersrequiringprepayment.Theseresultssuggestthat“brick-and-click”retailerscanexploitsynergiesbetweentheirchannelsthrough OOPS strategies for greater profitability than those who operate multiplechannelsindependently. Our research has practical implications for retailers that sell standardizedproducts.Ourindustrysurveysuggeststhatcross-channelretailingtodatehasbeenadopted primarily by retailers selling standardized products, and most productsavailable for OOPS are standardized as well. Retailers selling non-standardizedproductsoracombinationofthetwofaceadilemma,however.Self-affirmationforexpertisebecomesespeciallysalientforhedonicproducts,asthedifficultyofevaluatingsubjectiveorcredenceattributesoftheseproductsincreasesonline.Developmentofonlinedecisionaidstoevaluaterelevantattributes,trustadvisors,virtualmodelsandreturnguaranteeswillplayanimportantroleinbridgingthisgap.Therefore,researchisneededtoexamineifourfindingsholdtrueforretailerssellingnon-standardizedorhedonicproducts. Wefindthatthrift-seekingconsumersaremorelikelytoreversetheirpurchasedecision at a cross-channel retailer compared to amulti-channel retailer.We couldnottestifthiseffectholdstrueunderbothsimultaneousandseparableorderingandpaymentpoliciesduetorestrictionsondatacollectionatcommercialstoresinStudy2.Hence,firmswithlargerproportionsofconsumerswhoarethrift-seekingmayprefertoavoidallowingcross-channeltransactionstoprotecttheirmargins,providedtheirclosecompetitorsfollowthesamestrategy.Alternatively,across-channelstrategymaybeusedascustomersegmentationstrategybyfirmswithmixedcustomerbases,wherequality-sensitiveconsumersmaybewillingtopayapremiumforusingOOPS. Acriticalassumptionmadeinthisresearchiscross-channelretailersmaintainconsistencyinpricesonlineandintheirphysicalstores.Gap,Wal-Mart,OfficeDepot,HomeDepot,CircuitCityandSchwabareexamplesoffirmsthathavesuccessfullysynchronized their pricing strategies alongwith their operationsonline andoffline.Thisperceptionofconsistentpricingreducescompetitivesearchbehaviorby thrift-seeking consumers. However, in Study 3, approximately 12% of cross-channelretailersreportedthatpricesarenotalwayssynchronizedonlineandinstore.Thishasimplicationsforconsumerwelfareandpost-purchaseoutcomes.Afewwell-publicizedpricing discrepancies can lead to customer concerns about retailer fairness, and across-channelstrategycouldevenbealiabilityfornon-offendingfirms.Maintainingconsistencyinpricinghaspossibleimplicationsforretailerprofitabilityaswell.Severalbrick-and-click firms have been forced to match their competitors’ prices online,creating a conflictwith prices in their physical stores and consequently,with theiroperatingmargins offline, as stores have higher costs of operations.Therefore, thevolumeofcross-channeltransactionsandtheabilitytoattractcompetitors’consumerswillbekeytomaintainingprofits.Theoptimumsolutionmightbea“winnertakesall”approach,andmostretailsectorsmaysoonbedominatedbyafewlarge,successful,cross-channel retailers with such a strategy. This is an issue that warrants seriousinvestigation,however,asretailmarginsdeclineovertimeandretailersseektobreakoutofthecommoditizationtrapbycreatingnewwaystooffervalue.



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