Consumer's online purchase cost and firm profits in a dual‐channel competitive market

Abstract

Purpose

The main purpose of this paper is to provide an analytical conceptual framework to help business marketers to identify the effect of consumer's online purchase cost on a firm's performance in a dual‐channel competitive market.

Design/methodology/approach

A structural model using game theory is developed to search the optimal strategies for both online and traditional channel retailers.

Findings

Our model results show that consumer's online purchase cost consistently has a valuable impact on a firm's profit, and consumer's online purchase cost shows a much more valuable impact on firm's profit when the traditional retail transaction cost and the product web‐fit change. We also find that consumer's online purchase cost has a greater impact on the firm's profit in a Stackelberg competition than in a Bertrand competition.

Research limitations/implications

The present study holds the assumption that all information is known to the online retailers and the traditional retailers. However, information could be incomplete and asymmetric. It is recommended that future research explores the value of consumer's online purchase cost under information asymmetry.

Practical implications

Our paper provides a comprehensive model framework for business managers who currently use or plan to use internet channel to sell their products.

Originality/value

Our research model fills a conceptual and practical gap with a structured analysis of the current state of knowledge about consumer's online purchase cost. The paper provides practical and solid advice and examples demonstrating the application of the different types of optimal marketing strategies for business managers.

Citation

Yan, R. and Yeh, R. (2009), "Consumer's online purchase cost and firm profits in a dual‐channel competitive market", Marketing Intelligence & Planning, Vol. 27 No. 5, pp. 698-713. https://doi.org/10.1108/02634500910977908