Channel Changes Choice: An Empirical Study About Omnichannel Demand Sensitivity to Fulfillment Lead Time

Stanley Frederick W. T. Lim (), Fei Gao () and Tom Fangyun Tan ()
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Stanley Frederick W. T. Lim: Eli Broad College of Business, East Lansing, Michigan 48824
Fei Gao: Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Tom Fangyun Tan: Cox Business School, Southern Methodist University, Dallas, Texas 75275

Management Science, 2024, vol. 70, issue 5, 2954-2975

Abstract: We examine a large transaction-level data set of an Italian omnichannel furniture retailer to study channel-specific effects of fulfillment lead time on demand. This omnichannel retailer sells the same products and has the same product fulfillment across three channels: showroom, online, and catalog. The showroom channel carries no inventory but allows customers to touch and feel the products. The online channel provides a website for consumers to browse and order the products. The catalog channel sends a product catalog to all the households in Italy, so they can place an order over the phone. We find that the showroom channel makes consumers less sensitive to fulfillment lead time than both online and catalog channels. In particular, a 10% increase in lead time (1.83 days from the sample mean of 18.26 days) causes a 0.29% reduction in the daily sales volume (approximately 29 units from the sample mean of 10,140 units per day) at the showroom, which is less than the reduction of 1.85% and 0.92% in the online and the catalog channels, respectively. This finding contradicts the common practical and theoretical assumption about homogeneous lead time sensitivity across channels. In addition, we find that niche products and experience goods accentuate the difference of lead time sensitivity between showroom and nonphysical channels. Through an online experiment, we show that higher product information precision, such as that provided in a showroom, can alleviate customers’ anxiety around product uncertainty, thus reducing lead time sensitivity and increasing purchase intent. We further build two analytical models to show the implications of our empirical results for showroom network design and inventory rationing decisions. Our study highlights the previously ignored fulfillment time sensitivity aspect of the physical store’s value.

Keywords: omnichannel retailing; demand sensitivity to lead time; showrooms; online channel; catalog channel; empirical retail (search for similar items in EconPapers)
Date: 2024
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