IDEAS home Printed from https://ideas.repec.org/a/eee/joinma/v46y2019icp52-69.html

Online Category Pricing at a Multichannel Grocery Retailer

Author

Listed:
  • Cebollada, Javier
  • Chu, Yanlai
  • Jiang, Zhiying

Abstract

As the importance of online grocery shopping increases, both pure-play online grocers and multichannel grocers are likely to be interested in setting optimal prices for their online stores. We use a unique household scanner panel dataset to investigate how a grocery retailer with both online and offline stores can set prices for its online store. We observe the same households shopping interchangeably at the online and offline stores of the same grocery chain and investigate their purchase behavior in specific product categories. We find that across three product categories, these households exhibit lower price sensitivities when shopping online than offline. In addition, a household's price sensitivity is inversely related to distance to the closest physical store. We compute the retailer's category profit-maximizing prices for the online store and explore several alternative pricing schemes that are consistent with the retailer's current price image. We find that the retailer can substantially increase its profits from online operations by fine tuning its current pricing policy. Given the estimated inverse relationship between price sensitivity and store distance, we investigate online zone pricing as a price discrimination tool based on residential location and find that the retailer can further improve store profits. We examine the potential mechanism to assign zones and determine the optimal number of pricing zones.

Suggested Citation

  • Cebollada, Javier & Chu, Yanlai & Jiang, Zhiying, 2019. "Online Category Pricing at a Multichannel Grocery Retailer," Journal of Interactive Marketing, Elsevier, vol. 46(C), pages 52-69.
    • Handle: RePEc:eee:joinma:v:46:y:2019:i:c:p:52-69
    DOI: 10.1016/j.intmar.2018.12.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1094996818300756
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intmar.2018.12.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Peter J. Danaher & Isaac W. Wilson & Robert A. Davis, 2003. "A Comparison of Online and Offline Consumer Brand Loyalty," Marketing Science, INFORMS, vol. 22(4), pages 461-476, February.
    2. Junhong Chu & Puneet Manchanda, 2016. "Quantifying Cross and Direct Network Effects in Online Consumer-to-Consumer Platforms," Marketing Science, INFORMS, vol. 35(6), pages 870-893, November.
    3. Junhong Chu & Pradeep Chintagunta & Javier Cebollada, 2008. "Research Note—A Comparison of Within-Household Price Sensitivity Across Online and Offline Channels," Marketing Science, INFORMS, vol. 27(2), pages 283-299, 03-04.
    4. Jie Zhang & Lakshman Krishnamurthi, 2004. "Customizing Promotions in Online Stores," Marketing Science, INFORMS, vol. 23(4), pages 561-578, June.
    5. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    6. Kim, Byung-Do & Blattberg, Robert C & Rossi, Peter E, 1995. "Modeling the Distribution of Price Sensitivity and Implications for Optimal Retail Pricing," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 291-303, July.
    7. Pradeep Chintagunta & Jean-Pierre Dubé & Khim Yong Goh, 2005. "Beyond the Endogeneity Bias: The Effect of Unmeasured Brand Characteristics on Household-Level Brand Choice Models," Management Science, INFORMS, vol. 51(5), pages 832-849, May.
    8. Chu, Junhong & Arce-Urriza, Marta & Cebollada-Calvo, José-Javier & Chintagunta, Pradeep K., 2010. "An Empirical Analysis of Shopping Behavior Across Online and Offline Channels for Grocery Products: The Moderating Effects of Household and Product Characteristics," Journal of Interactive Marketing, Elsevier, vol. 24(4), pages 251-268.
    9. Andrew Ainslie & Peter E. Rossi, 1998. "Similarities in Choice Behavior Across Product Categories," Marketing Science, INFORMS, vol. 17(2), pages 91-106.
    10. Duncan Simester, 1995. "Signalling Price Image Using Advertised Prices," Marketing Science, INFORMS, vol. 14(2), pages 166-188.
    11. J. Miguel Villas-Boas & Russell S. Winer, 1999. "Endogeneity in Brand Choice Models," Management Science, INFORMS, vol. 45(10), pages 1324-1338, October.
    12. Pradeep Chintagunta & Jean-Pierre Dubé & Vishal Singh, 2003. "Balancing Profitability and Customer Welfare in a Supermarket Chain," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 111-147, March.
    13. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, March.
    14. Keane, Michael, 1993. "Simulation estimation for panel data models with limited dependent variables," MPRA Paper 53029, University Library of Munich, Germany.
    15. Gerard J. Tellis & Fred S. Zufryden, 1995. "Tackling the Retailer Decision Maze: Which Brands to Discount, How Much, When and Why?," Marketing Science, INFORMS, vol. 14(3), pages 271-299.
    16. Yan, Wei & Xiong, Yu & Chu, Junhong & Li, Gendao & Xiong, Zhongkai, 2018. "Clicks versus Bricks: The role of durability in marketing channel strategy of durable goods manufacturers," European Journal of Operational Research, Elsevier, vol. 265(3), pages 909-918.
    17. Alan L. Montgomery, 1997. "Creating Micro-Marketing Pricing Strategies Using Supermarket Scanner Data," Marketing Science, INFORMS, vol. 16(4), pages 315-337.
    18. Michael Lewis & Vishal Singh & Scott Fay, 2006. "An Empirical Study of the Impact of Nonlinear Shipping and Handling Fees on Purchase Incidence and Expenditure Decisions," Marketing Science, INFORMS, vol. 25(1), pages 51-64, 01-02.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pradeep K. Chintagunta & Junhong Chu, 2021. "Geography as branding: Descriptive evidence from Taobao," Quantitative Marketing and Economics (QME), Springer, vol. 19(1), pages 53-92, March.
    2. Neslin, Scott A., 2022. "The omnichannel continuum: Integrating online and offline channels along the customer journey," Journal of Retailing, Elsevier, vol. 98(1), pages 111-132.
    3. Blasco-Arcas, Lorena & Lee, Hsin-Hsuan Meg & Kastanakis, Minas N. & Alcañiz, Mariano & Reyes-Menendez, Ana, 2022. "The role of consumer data in marketing: A research agenda," Journal of Business Research, Elsevier, vol. 146(C), pages 436-452.
    4. Erdmann, Anett & Ponzoa, José M., 2021. "Digital inbound marketing: Measuring the economic performance of grocery e-commerce in Europe and the USA," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    5. Marcial López-Pastor & Jesús García-Madariaga & Joaquín Sánchez & Jose Figueiredo, 2020. "Demand Impact for Prices Ending with “9” and “0” in Online and Offline Consumer Goods Retail Trade Channels," International Review of Management and Marketing, International Review of Management and Marketing, vol. 10(6), pages 58-78.
    6. Arvind Shroff & Satish Kumar & Luisa M. Martinez & Nitesh Pandey, 2024. "From clicks to consequences: a multi-method review of online grocery shopping," Electronic Commerce Research, Springer, vol. 24(2), pages 925-964, June.
    7. Ryoo, Yuhosua & Kim, WooJin, 2023. "Price-ethicality association: When price discounts inhibit ethical purchasing," Journal of Business Research, Elsevier, vol. 169(C).
    8. Torsten J. Gerpott & Jan Berends, 2022. "Competitive pricing on online markets: a literature review," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(6), pages 596-622, December.
    9. Philipp Brüggemann & Koen Pauwels, 2025. "How attitudes and purchases differ between also-online versus offline-only grocery shoppers in online and offline grocery shopping," Electronic Commerce Research, Springer, vol. 25(3), pages 1973-2009, June.
    10. Verstraeten, Julie & Heeremans, Eva & Geuens, Maggie & Vermeir, Iris, 2023. "How online grocery shopping drives private label food purchases," Journal of Business Research, Elsevier, vol. 167(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Junhong Chu & Pradeep Chintagunta & Javier Cebollada, 2008. "Research Note—A Comparison of Within-Household Price Sensitivity Across Online and Offline Channels," Marketing Science, INFORMS, vol. 27(2), pages 283-299, 03-04.
    2. Anett Weber & Winfried J. Steiner & Stefan Lang, 2017. "A comparison of semiparametric and heterogeneous store sales models for optimal category pricing," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(2), pages 403-445, March.
    3. Guhl, Daniel, 2024. "Tracking time-varying brand equity using household panel data," Journal of Business Research, Elsevier, vol. 182(C).
    4. Guhl, Daniel, 2019. "Addressing endogeneity in aggregate logit models with time-varying parameters for optimal retail-pricing," European Journal of Operational Research, Elsevier, vol. 277(2), pages 684-698.
    5. Jean-Pierre H. Dubé, 2018. "Microeconometric Models of Consumer Demand," NBER Working Papers 25215, National Bureau of Economic Research, Inc.
    6. Sungho Park & Sachin Gupta, 2012. "Handling Endogenous Regressors by Joint Estimation Using Copulas," Marketing Science, INFORMS, vol. 31(4), pages 567-586, July.
    7. Kopalle, Praveen & Biswas, Dipayan & Chintagunta, Pradeep K. & Fan, Jia & Pauwels, Koen & Ratchford, Brian T. & Sills, James A., 2009. "Retailer Pricing and Competitive Effects," Journal of Retailing, Elsevier, vol. 85(1), pages 56-70.
    8. Pradeep Chintagunta & Jean-Pierre Dubé & Khim Yong Goh, 2005. "Beyond the Endogeneity Bias: The Effect of Unmeasured Brand Characteristics on Household-Level Brand Choice Models," Management Science, INFORMS, vol. 51(5), pages 832-849, May.
    9. Timothy Richards, 2007. "A nested logit model of strategic promotion," Quantitative Marketing and Economics (QME), Springer, vol. 5(1), pages 63-91, March.
    10. Sungho Park & Sachin Gupta, 2012. "Comparison of SML and GMM estimators for the random coefficient logit model using aggregate data," Empirical Economics, Springer, vol. 43(3), pages 1353-1372, December.
    11. Harris-Lagoudakis, Katherine, 2023. "The effect of online shopping channels on brand choice, product exploration and price elasticities," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    12. Brian Adams & Kevin R. Williams, 2019. "Zone Pricing in Retail Oligopoly," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 124-156, February.
    13. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
    14. J. Miguel Villas-Boas & Russell S. Winer, 1999. "Endogeneity in Brand Choice Models," Management Science, INFORMS, vol. 45(10), pages 1324-1338, October.
    15. Michaela Draganska & Dipak Jain, 2004. "A Likelihood Approach to Estimating Market Equilibrium Models," Management Science, INFORMS, vol. 50(5), pages 605-616, May.
    16. Ron Berman & Yuval Heller, 2020. "Naive analytics equilibrium," Papers 2010.15810, arXiv.org, revised Apr 2021.
    17. Guillermo Israilevich, 2004. "Assessing Supermarket Product-Line Decisions: The Impact of Slotting Fees," Quantitative Marketing and Economics (QME), Springer, vol. 2(2), pages 141-167, June.
    18. Johnson, Joseph & Tellis, Gerard J. & Ip, Edward H., 2013. "To Whom, When, and How Much to Discount? A Constrained Optimization of Customized Temporal Discounts," Journal of Retailing, Elsevier, vol. 89(4), pages 361-373.
    19. Tongil “TI”Kim, 2021. "When Franchisee Service Affects Demand: An Application to the Car Radiator Market and Resale Price Maintenance," Marketing Science, INFORMS, vol. 40(1), pages 101-121, January.
    20. Philipp Brüggemann & Koen Pauwels, 2025. "How attitudes and purchases differ between also-online versus offline-only grocery shoppers in online and offline grocery shopping," Electronic Commerce Research, Springer, vol. 25(3), pages 1973-2009, June.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joinma:v:46:y:2019:i:c:p:52-69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-interactive-marketing/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.