Building with Bricks and Mortar: The Revenue Impact of Opening Physical Stores

By Koen Pauwels, Scott A. Neslin. 2015

284 citations recorded by the source corpus.

A crucial decision firms face today is which channels they should make available to customers for transactions. We assess the revenue impact of adding bricks-and-mortar stores to a firm's already existing repertoire of catalog and Internet channels. We decompose the revenue impact into customer acquisition, frequency of orders, returns, and exchanges, and size of orders, returns, and exchanges. We use a multivariate baseline method to assess the impact of adding the physical store channel on these revenue components. As hypothesized, store introduction cannibalizes catalog sales and has much less impact on Internet sales. Also as hypothesized, returns and exchanges increase. Interestingly, transaction sizes of purchases, returns, and exchanges do not change. The “availability effect” produces a net increase in purchase frequency across channels. This more than compensates for increased returns, producing a net increase in revenues of 20% by adding the store channel. Our findings yield a deeper understanding of the revenue relation between channels, and of the dynamic cross-channel effects of marketing actions.

Subfields: Marketing, Organizational Behavior and Human Resource Management

View Paper: https://www.semanticscholar.org/paper/fb04c4d54804a66a77d87c6027c5f076aaebb7a5

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Citations in the corpus

• Adding Bricks to Clicks: Predicting the Patterns of Cross-Channel Elasticities over Time (2011, background): “An asymmetrical response between the two direct channels is consistent with the finding reported in Pauwels and Neslin (2009), who empirically show that catalog sales are cannibalized by the opening of a retail store, while Internet sales are not.”
• Toward a three-dimensional framework for omni-channel (2017, unknown): “Channel cannibalization has been indicated between traditional and self-service channels (Falk et al., 2007), between catalog and store channels (Pauwels and Neslin, 2015), and between manufacturer direct channel and traditional sales via retailers (Yan, 2011).”