Pricing and ordering decisions for the supply chain integrating of online and offline channels

This research examines the impacts of online and offline channel integration, known as O2O modes including online to offline mode and offline to online mode. Although channel integration has been acknowledged as a promising strategy for retailers, its effects on consumers and retailers remain unclear. Drawing on the mathematical model based on game theory and concrete analysis of business case, we develop the classic newsvendor model that captures the essential elements of consumers’ strategic behavior and the motivation of single channel retailer in O2O modes. We derive the optimal decisions of retailing price and ordering quantity. Our study shows that the impacts of O2O modes on retailer’s profit depends on the delivery cost in online channel and service cost in offline channel, the O2O mode will increase the profit of the single channel retailer if both the service cost and the delivery cost are relatively large or small simultaneously, moreover, we find that when retailer’s service cost is small, if the retailer increases the customer’s utility of service, not only does the probability that the O2O mode improves retailer’s profit increases, but also the improved profit can be enhanced. These findings have direct implications for retailers interested in understanding whether and how O2O mode affects their outcomes.