Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • January – February 2011
  • Article
  • Marketing Science

'Bricks and Clicks': The Impact of Product Returns on the Strategies of Multichannel Retailers

By: Elie Ofek, Zsolt Katona and Miklos Sarvary
  • Format:Print
ShareBar

Abstract

The Internet has increased the flexibility of retailers, allowing them to operate an online arm in addition to their physical stores. The online channel offers potential benefits in selling to customer segments that value the convenience of online shopping, but it also raises new challenges. These include the higher likelihood of costly product returns when customers' ability to "touch and feel" products is important in determining fit. We study competing retailers that can operate dual channels ("bricks and clicks") and examine how pricing strategies and physical store assistance levels change as a result of the additional Internet outlet. A central result we obtain is that when differentiation among competing retailers is not too high, having an online channel can actually increase investment in store assistance levels (e.g., greater shelf display, more-qualified sales staff, floor samples) and decrease profits. Consequently, when the decision to open an Internet channel is endogenized, there can exist an asymmetric equilibrium where only one retailer elects to operate an online arm but earns lower profits than its bricks-only rival. We also characterize equilibria where firms open an online channel, even though consumers only use it for research and learning purposes but buy in stores. A number of extensions are discussed, including retail settings where firms carry multiple product categories, shipping and handling costs, and the role of store assistance in impacting consumer perceived benefits.

Keywords

Price; Profit; Marketing Channels; Consumer Behavior; Online Technology; Retail Industry

Citation

Ofek, Elie, Zsolt Katona, and Miklos Sarvary. "'Bricks and Clicks': The Impact of Product Returns on the Strategies of Multichannel Retailers." Marketing Science 30, no. 1 (January–February 2011).
  • Find it at Harvard

About The Author

Elie Ofek

Marketing
→More Publications

More from the Authors

    • April 2023
    • Faculty Research

    LOOP: Driving Change in Auto Insurance Pricing

    By: Elie Ofek
    • March 2023
    • Faculty Research

    How Should Netflix Add an Ad-Supported Tier?

    By: Elie Ofek and Olivier Toubia
    • March 2023
    • Faculty Research

    Companion to: Demand Simulator Spreadsheet Supplement

    By: Elie Ofek and Olivier Toubia
More from the Authors
  • LOOP: Driving Change in Auto Insurance Pricing By: Elie Ofek
  • How Should Netflix Add an Ad-Supported Tier? By: Elie Ofek and Olivier Toubia
  • Companion to: Demand Simulator Spreadsheet Supplement By: Elie Ofek and Olivier Toubia
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College