Consumer Store Choice in Online and Mobile Retail Environment

In my dissertation, I study customer behavior in a multi-channel retail environment, such as the impact of mobile-shopping-channel adoption for grocery items and the grocery-store-choice decision, and customers’ strategic behavior in online auctions. In the first chapter, I map consumer responses to the introduction of a mobile application in two existing channels (online and offline) by using a unique dataset from a major Korean grocery retailer. I find that as households adopt the mobile application as a new shopping channel, they increase weekly expenditure by 14.2% on average, due primarily to the higher frequency of shopping trips rather than the larger basket size. I also find considerable heterogeneity in the impact of mobile adoption across consumer segments with differing shopping habits before the mobile introduction. Online-only and hybrid (online and offline) shoppers show modest increases in their expenditure and little or no change in their channel-usage pattern. An important implication is that mobile apps can be a competitive tool to induce business switching, thereby increasing market share for a grocery chain. In the second chapter, I build a store-choice model in a multichannel retail environment. Travel cost, the major determinant of which is the distance and basket weight, is a critical factor in store choice for customers living in a metropolitan area where retail stores have limited parking and customers usually walk to the store for shopping. Using household loyalty card data from a multichannel retail chain located in metropolitan areas where all competing grocery chains practice a homogeneous pricing strategy (HiLo), I build a store-choice model focusing on customers' travel costs. Along with size of retail outlet, prices, promotion, and distance to offline store, we particularly measure and quantify the effect of the actual weight of the shopping basket on the store-choice decision. To my best knowledge, our study is the first to quantify the effect of actual weight of the shopping basket à la the law of retail gravitation, the foundational theory of store choice. I find that the negative impact of the distance on total expenditure at the retail chain is much stronger for households who only use the chain’s offline store than for households who use both the chain’s offline and online store. I also find that when the weight of a basket increases by one pound, the likelihood of choosing the nearest offline store increases by 1.43% and the likelihood of choosing an online store increases by 4.06%. In a counterfactual analysis, I identify and compare the profitability of candidate locations for a new chain store. In the third chapter, I employ the results of a field study with a pairwise design of simultaneous auctions selling identical products but different added surcharges under a single seller. Retailers frequently use surcharges to make comparing prices harder. Greenleaf et al. (2016) propose that a two-stage process is involved in the consideration of surcharges, where consumers use base prices to determine their consideration set, and then potentially underweight the base price in the later-stage decision in forming value perceptions. The primary goal, using a novel dataset that includes consideration as well as bidding information, is to test that conjecture by looking at the determinants of both consideration-set formation and bids. The secondary objective is to map the relationship between surcharge and revenue, as well as its boundaries. I examine surcharges in auctions for identical items with different surcharges. I find that bidders do not accurately process price plus surcharge when the surcharge difference is small, but they become more attentive when the surcharge difference is higher. This tendency leads to an inverted U-shaped relationship between surcharge amount and total price difference between the items. Further, the optimal surcharge changes inversely with bidder experience and the expected number of bidders. As bidders gain more experience, they tend to avoid bidding in higher surcharge auctions.