Online coupon and offline service efforts in omnichannel retailing with cross-channel effect

This paper develops three channel models consisting of an online retailer and an offline counterpart, including the multichannel model, the buy-online pick-up in-store (BOPS) model, and the buy-online return in-store (BORS) model. First, we examine the impacts of online return rate and consumers’ return cost on the performance and optimal strategies of the retailers for each channel model. Then, we explore the conditions for the online retailer to adopt the omnichannel strategy (i.e., BOPS, BORS) and evaluate the resulting impact on the offline retailer’s profit. Next, we conduct the comparative analysis on the optimal decisions and performance of both online and offline retailers pre- and post-implementation of BOPS/BORS. Moreover, we also explore the scenario where the offline retailer offers coupons and consumers exhibit free-riding behavior. Our findings reveal that the choice between adopting BOPS or BORS depends on the return rate and return processing cost. Under the same external conditions (i.e., return rate, consumers’ return cost), a low return processing cost can prompt a stronger inclination toward BORS for the online retailer, whereas a higher cost push him to choose BOPS. After the implementation of omnichannel, the offline retailer’s profit from initial products is reduced, but the cross-selling opportunities are increased. Through the robustness analysis of the model, the motivation for adopting an omnichannel strategy remains largely unchanged when the offline retailer also offers coupons, although the threshold values are changed. Furthermore, the omnichannel motivation is influenced by the prevalence of free-riding behavior when such behaviors are taken into account.