Omnichannel Services: The False Premise and Operational Remedies

Opher Baron (), Xiaole Chen () and Yang Li ()
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Opher Baron: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Xiaole Chen: School of Business, Sun Yat-sen University, Guangzhou 510275, China
Yang Li: Ivey Business School, Western University, London, Ontario N6G 0N1, Canada

Management Science, 2023, vol. 69, issue 2, 865-884

Abstract: The notion of omnichannel, an integration of brick-and-mortar stores with online channels, has been thriving in recent years and is reforming the traditional service industry. Many service chains, such as Starbucks and McDonald’s, established omnichannel capability by allowing customers to order online in advance before visiting stores for pickup. The premise of omnichannel services is that when customers take advantage of the low-cost-of-waiting online channel, both their utility and the provider’s revenue will increase. Although simply adding an online-ordering option to the conventional walk-in model stimulates revenue, it also inflicts interference on the walk-in channel. We show that online ordering inadvertently reduces customers’ individual utility and social welfare when both channels are used in equilibrium. Moreover, the less it costs to order and wait online, the more the social welfare is reduced. We then evaluate two industry state-of-the-art operational remedies: regulating the use of the online channel and establishing channel-dedicated capacities. Although both remedies may improve the throughput over the walk-in-only service or even the first-come-first-served omnichannel service, they are unlikely to achieve this without jeopardizing the social welfare. We thus propose prioritizing walk-in customers and show that such prioritization can deliver this premise—that is, simultaneously benefiting the service provider and customers in comparison with the conventional walk-in-only service when both channels are used in equilibrium. Our results highlight that creating an efficient marketplace requires synergy between innovative technology and effective operational strategies.

Keywords: service operations; omnichannel services; customer choices; channel interference (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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