The effect of cross channel policies in omnichannel operations

Tao Xu

doi:10.17918/00010977

In omnichannel retailing, a number of cross-channel policies have recently gained popularity, notably the Buy Online and Return in Store (BORS) and Buy Online and Pick up in Store (BOPS) strategies. These initiatives enable customers to place online orders and subsequently return unsatisfied product (BORS) or pick up the product (BOPS) at a physical store. While these policies enhance customer convenience and stimulate demand, they also introduce operational complexities in integrating online and offline channels. We study three problems in this dissertation. Firstly, we investigate how these policies impact an omnichannel retailer's decisions concerning product location - determining which Stock Keeping Units (SKUs) to carry in physical stores, and inventory decision - establishing an optimal inventory level for each SKU. For inventory decisions, we find that (i) with BORS only: physical stores should store less inventory; (ii) With BOPS only: physical stores should store more inventory; and (iii) Applying both policies: physical stores should adjust their inventory level based on the proportion of high valuation customers. For product location decisions we find that when the cost of handling returned products is high, the BORS and BOPS policies lead to a higher number of SKUs to be carried in-store. Furthermore, we analyze how these results change in scenarios with storage space constraints and propose a heuristic algorithm. Another challenge faced by omnichannel retailers is the significantly higher incidence of returns in the online channel compared to the offline channel. We study a BORS model in which the online retailers propose an agreement with local offline retailers to offer offline returns to customers instead of requiring customers to mail products back through delivery services. Our objective is to investigate whether per-unit fee return partnership agreements--where the online retailer pays a fixed fee to the offline retailer for each product returned in-store--can yield mutual benefits for both retailers. We find that, for the customers, even though they are offered with better return experience, the prices for the products with BORS partnership will be higher than prices without such policy. We demonstrate that the profits for both online and offline retailers may be higher when they implement the BORS partnership. The BORS partnership policy benefits the online retailer by attracting more customers, and when returns occur, customers who choose to return in the offline store tend to purchase the substitute products which also benefits the profits of offline retailers. Finally, we demonstrate that a per-unit fee agreement becomes mutually profitable for both online and offline retailers when the proportion of high-value customers is sufficiently large. Finally, we examine the decisions faced by omnichannel retailers when customers are environmentally conscious. Environmentally conscious customers typically derive less utility from returning products online because when BORS is available, these customers are more likely to utilize this option to avoid the environmental impact associated with online returns. We develop an analytical model to examine how customers' environmental attitudes influence their channel choice behavior and the resulting implications for retailer profitability. The analysis reveals that as customers become more environmentally conscious, online retailers experience a decline in profitability, driven by the environmental externalities associated with shipping and product returns. In contrast, offline retailers benefit from environmentally conscious customers, who are less likely to return products and thus exhibit a stronger preference for in-store purchases. BORS partnerships contribute to environmental sustainability for online retailer by consolidating return logistics and reducing the carbon footprint associated with individual return shipments.

The effect of cross channel policies in omnichannel operations

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The effect of cross channel policies in omnichannel operations

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Drexel University Social media