Impact of Web-based e-Commerce on Channel Strategy in Retailing

Web-based channels are fast becoming an integral part of the channel strategy of traditional off-line retailers. This paper uses a game-theoretic approach to study the impact of Web-based e-commerce on retailers' choices of distribution channel strategies. At present most firms adopt a multi-channel strategy that includes both Web-based channels and pre-existing off-line channels. The analysis identifies this trend as an equilibrium of the game resulting from competitive pressure by other retailers, but shows that it is not the only possible short-run outcome. Other possible outcomes are: all sellers continue to sell via traditional off-line channels; some sellers adopt a coordinated dual-channel strategy (i.e., both on-line and off-line) when faced with competition from Web-based entrants; off-line sellers continue to sell via off-line channels when faced with purely on-line competition. The conditions for these equilibriums depend on the proportion of buyers unlikely to buy on-line and their level of discomfort with on-line channels. Traditionally off-line sellers can preempt competition from on-line channels by improving such features as convenience, personalized after-sale service, and trust. In so doing, they will also increase the factor of buyer discomfort associated with relatively new and unknown on-line channels.