Buy-online-pickup-in-store service: A precarious competing strategy

Abstract

The widespread adoption of buy-online-pickup-in-store (BOPS) services has attracted significant research attention, particularly regarding when an online retailer should deploy BOPS service for last-mile delivery (LMD). This study examines the efficiency of BOPS adoption in a competing environment. Using a game-theoretical model within a duopoly framework, we investigate the pricing and BOPS service design decisions between competing retailers with varying home delivery (HD) service qualities. The results reveal how a retailer responds to its competitor’s different BOPS adoption strategies. When it is not yet available in the market, BOPS service provides a competitive advantage as the only BOPS-offering retailer enjoys increased profits. We identify distinctive profit mechanisms for retailers with a higher or lower level of HD service quality: enhanced competitive differentiation effect for the former and quality perception improvement effect for the latter. Nevertheless, our analysis shows that when both retailers adopt BOPS service, they reach an equilibrium where at least one retailer is worse off. The prisoner’s dilemma may occur where both retailers end up in a suboptimal position, and the likelihood of this dilemma is influenced by their HD service quality differentiation. Ultimately, while seemingly beneficial, BOPS service is a precarious competitive strategy that may trap retailers. Our findings contribute to the expanding BOPS literature and offer valuable practical implications for online retailing.