Brick-and-mortar or brick-and-click? The influence of online customer reviews on a retailer’s channel strategy

Abstract

Adding an online channel generates more information about consumers’ preferences for particular products (e.g., through online customer reviews), and this information can be used to forecast demand more precisely. In this article, we investigate the influence of online customer reviews on a retailer’s decision to add to its physical store channel an online channel with a supply chain consisting of that of a brick-and-mortar retailer and a third-party logistics provider. We find the retailer’s optimal channel strategy (store only or online plus store) will be jointly affected by the additional cost of establishing an online channel, the increase in market size that is attained by adding the online channel, as well as the additional value of information revealed by online customer reviews. Interestingly, under both differentiated and uniform pricing strategies, when the fixed cost is moderate, the retailer benefits from adding an online channel if the additional value of information and the increase in market size exceed some thresholds; otherwise, doing so cannot increase the retailer’s profit. However, when online customer reviews exert two effects on updating demand uncertainty, negative (positive) customer reviews will reduce (increase) the value of information, and the retailer will be inhibited from adding (induced to add) an online channel. Moreover, a larger degree of risk aversion on the part of the retailer will inhibit the retailer from adding an online channel.

Keywords:

• Channel strategy
• dual-channel
• information updating
• online customer reviews

Acknowledgments

We are grateful to the departmental editor, the associate editor, and three anonymous referees for very helpful comments and suggestions, which have significantly improved the quality of this article.

Additional information

Funding

This work is supported by the National Natural Science Foundation of China [NO. 72071080, NO. 71771090, NO. 71771123], Guangdong Basic and Applied Basic Research Foundation, China [NO. 2019A1515011768, NO. 2019A1515010763], Key Soft Science Project of Guangdong Province, China [NO. 2020B1010010001].

Notes on contributors

Fei Ye

Fei Ye received a PhD degree in management science and engineering from the South China University of Technology (SCUT), Guangzhou, China, in 2003. He is currently a professor with the School of Business Administration, SCUT. He has authored/coauthored articles in refereed journals, including IISE Transactions, Journal of Retailing, Journal of Service Research, Naval Research Logistics, European Journal of Operational Research, etc. His research interests include operations and supply chain management.

Lunhai Liang

Lunhai Liang is currently pursuing a PhD degree in management science and engineering from the South China University of Technology (SCUT), Guangzhou, China. His research interest mainly focuses on online consumer reviews and dual-channel supply chain management.

Yang Tong

Yang Tong received a PhD degree in management science and engineering from the South China University of Technology (SCUT), Guangzhou, China, in 2021. He is currently a lecturer with the College of Economics and Management, Zhejiang Normal University. He has authored/coauthored articles in refereed journals, including IISE Transactions, International Journal of Production Research, and Computers & Industrial Engineering. His research interests include platform economic and online customer reviews.

Guangyi Xu

Guangyi Xu is currently pursuing a PhD degree in management science and engineering from the South China University of Technology (SCUT), Guangzhou, China. His research interests include big data and human resource management.

Zefei Xie

Zefei Xie received a PhD degree in management science and engineering from the South China University of Technology (SCUT), Guangzhou, China, in 2021. His research interests include system optimization and data analysis.