Fee or free? Re-think the role of service fees in omnichannel retailing after the pandemic

Many UK high-street retailers leverage their brick-and-mortar stores to implement omnichannel strategies. This strategy drives online traffic into stores by allowing online customers to collect in-store. Due to the COVID-19 pandemic, retailers have endured soaring operational costs and plummeting store footfall, and customers have become more price-sensitive when the cost-of-living crisis bites. This situation leads to a trade-off: charging a collection fee may deter customers from purchasing, whilst offering free collections could cause a financial loss. This paper develops a stylised model to understand how omnichannel collections affect customer demand and retailer profitability after the pandemic. We consider three omnichannel collection scenarios based on observed practices: free, discounted, and fixed rate. Our results show that a collection fee can positively steer customer demand across channels and improve retailer profitability, and the optimal omnichannel policy exists. The collection fee should also be jointly determined with the existing home delivery fee.