IDEAS home Printed from https://ideas.repec.org/a/eee/joinma/v39y2017icp69-88.html
   My bibliography  Save this article

Basket Composition and Choice Among Direct Channels: A Latent State Model of Shopping Costs

Author

Listed:
  • Kalyanam, Kirthi
  • Lenk, Peter
  • Rhee, Eddie

Abstract

Shoppers of multi-channel retailers often place orders using different channels on different shopping occasions. The differential use of channels is related to both basket composition and channel characteristics, such as the ability of the channel to provide additional information that resolves uncertainty about the purchase. In this paper, we examine the impact of basket composition on the choice among direct channels. We develop a two-stage, shopping cost model with two, latent states. Given a shopping basket, the shopper first decides if she needs additional information about items in the basket. If she is uncertain about the items in the basket meeting her needs, she uses an information rich channel, such as the retailer's website or call center, and risk reduction costs become salient in addition to the other shopping costs. If she does not require additional information, she places her order by choosing among all available channels, and she may incur a welfare loss from making a purchase that does not optimally meet her needs. We operationalize welfare loss with Shannon information and various metrics based on purchase history.

Suggested Citation

  • Kalyanam, Kirthi & Lenk, Peter & Rhee, Eddie, 2017. "Basket Composition and Choice Among Direct Channels: A Latent State Model of Shopping Costs," Journal of Interactive Marketing, Elsevier, vol. 39(C), pages 69-88.
    • Handle: RePEc:eee:joinma:v:39:y:2017:i:c:p:69-88
    DOI: 10.1016/j.intmar.2016.11.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1094996816300767
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intmar.2016.11.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Citrin, Alka Varma & Stem, Donald Jr. & Spangenberg, Eric R. & Clark, Michael J., 2003. "Consumer need for tactile input: An internet retailing challenge," Journal of Business Research, Elsevier, vol. 56(11), pages 915-922, November.
    2. Pradeep K. Chintagunta & Junhong Chu & Javier Cebollada, 2012. "Quantifying Transaction Costs in Online/Off-line Grocery Channel Choice," Marketing Science, INFORMS, vol. 31(1), pages 96-114, January.
    3. Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters, in: E-commerce, pages 541-558, National Bureau of Economic Research, Inc.
    4. Brian T. Ratchford, 1982. "Cost-Benefit Models for Explaining Consumer Choice and Information Seeking Behavior," Management Science, INFORMS, vol. 28(2), pages 197-212, February.
    5. Alvin J. Silk & Ernst R. Berndt, 1993. "Scale and Scope Effects on Advertising Agency Costs," Marketing Science, INFORMS, vol. 12(1), pages 53-72.
    6. Shugan, Steven M, 1980. "The Cost of Thinking," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 7(2), pages 99-111, Se.
    7. Randolph E. Bucklin & James M. Lattin, 1991. "A Two-State Model of Purchase Incidence and Brand Choice," Marketing Science, INFORMS, vol. 10(1), pages 24-39.
    8. Mitchell, Andrew A & Dacin, Peter A, 1996. "The Assessment of Alternative Measures of Consumer Expertise," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 23(3), pages 219-239, December.
    9. Alba, Joseph W & Hutchinson, J Wesley, 1987. "Dimensions of Consumer Expertise," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 13(4), pages 411-454, March.
    10. Jeffrey A. Dubin, 1986. "A Nested Logit Model of Space and Water Heat System Choice," Marketing Science, INFORMS, vol. 5(2), pages 112-124.
    11. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    12. Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters, in: E-commerce, pages 541-558, National Bureau of Economic Research, Inc.
    13. Claxton, John D & Fry, Joseph N & Portis, Bernard, 1974. "A Taxonomy of Prepurchase Information Gathering Patterns," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 1(3), pages 35-42, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shankar, Venkatesh & Kalyanam, Kirthi & Setia, Pankaj & Golmohammadi, Alireza & Tirunillai, Seshadri & Douglass, Tom & Hennessey, John & Bull, J.S. & Waddoups, Rand, 2021. "How Technology is Changing Retail," Journal of Retailing, Elsevier, vol. 97(1), pages 13-27.
    2. Cocco, Helen & Demoulin, Nathalie T.M., 2022. "Designing a seamless shopping journey through omnichannel retailer integration," Journal of Business Research, Elsevier, vol. 150(C), pages 461-475.
    3. Ratchford, Brian & Soysal, Gonca & Zentner, Alejandro & Gauri, Dinesh K., 2022. "Online and offline retailing: What we know and directions for future research," Journal of Retailing, Elsevier, vol. 98(1), pages 152-177.
    4. Gauri, Dinesh K. & Jindal, Rupinder P. & Ratchford, Brian & Fox, Edward & Bhatnagar, Amit & Pandey, Aashish & Navallo, Jonathan R. & Fogarty, John & Carr, Stephen & Howerton, Eric, 2021. "Evolution of retail formats: Past, present, and future," Journal of Retailing, Elsevier, vol. 97(1), pages 42-61.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gensler, Sonja & Neslin, Scott A. & Verhoef, Peter C., 2017. "The Showrooming Phenomenon: It's More than Just About Price," Journal of Interactive Marketing, Elsevier, vol. 38(C), pages 29-43.
    2. DeSarbo, Wayne S. & Choi, Jungwhan, 1998. "A latent structure double hurdle regression model for exploring heterogeneity in consumer search patterns," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 423-455, November.
    3. Jason Kuruzovich & Siva Viswanathan & Ritu Agarwal & Sanjay Gosain & Scott Weitzman, 2008. "Marketspace or Marketplace? Online Information Search and Channel Outcomes in Auto Retailing," Information Systems Research, INFORMS, vol. 19(2), pages 182-201, June.
    4. Jie Jennifer Zhang & Bing Jing, 2007. "The Impacts of Shopbots on Online Consumer Search," Working Papers 07-34, NET Institute, revised Sep 2007.
    5. Hauser, John R. & Urban, Glen L. & Weinberg, Bruce D., 1992. "Time flies when you're having fun : how consumers allocate their time when evaluating products," Working papers 3439-92., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Frank Goedertier & Kristof Geskens & Maggie Geuens & Bert Weijters, 2012. "Increasing choice satisfaction through goal-based labeling," Marketing Letters, Springer, vol. 23(1), pages 119-136, March.
    7. Pradeep K. Chintagunta & Junhong Chu, 2021. "Geography as branding: Descriptive evidence from Taobao," Quantitative Marketing and Economics (QME), Springer, vol. 19(1), pages 53-92, March.
    8. Alan L. Montgomery & Kartik Hosanagar & Ramayya Krishnan & Karen B. Clay, 2004. "Designing a Better Shopbot," Management Science, INFORMS, vol. 50(2), pages 189-206, February.
    9. Brynjolfsson, Erik & Dick, Astrid Andrea & Smith, Michael D., 2004. "Search and Product Differentiation at an Internet Shopbot," Working papers 4441-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Zhuang, Hejun & Popkowski Leszczyc, Peter T.L. & Lin, Yuanfang, 2018. "Why is Price Dispersion Higher Online than Offline? The Impact of Retailer Type and Shopping Risk on Price Dispersion," Journal of Retailing, Elsevier, vol. 94(2), pages 136-153.
    11. John C. Butler & James S. Dyer & Jianmin Jia, 2006. "Using Attributes to Predict Objectives in Preference Models," Decision Analysis, INFORMS, vol. 3(2), pages 100-116, June.
    12. Animesh Animesh & Siva Viswanathan & Ritu Agarwal, 2011. "Competing “Creatively” in Sponsored Search Markets: The Effect of Rank, Differentiation Strategy, and Competition on Performance," Information Systems Research, INFORMS, vol. 22(1), pages 153-169, March.
    13. Erik Brynjolfsson & Astrid Dick & Michael Smith, 2010. "A nearly perfect market?," Quantitative Marketing and Economics (QME), Springer, vol. 8(1), pages 1-33, March.
    14. Klaus, Phil & Zaichkowsky, Judith Lynne, 2022. "The convenience of shopping via voice AI: Introducing AIDM," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).
    15. Torsten J. Gerpott & Jan Berends, 2022. "Competitive pricing on online markets: a literature review," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(6), pages 596-622, December.
    16. Botti, Simona & Hsee, Christopher K., 2010. "Dazed and confused by choice: How the temporal costs of choice freedom lead to undesirable outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 112(2), pages 161-171, July.
    17. Manning, Kenneth C. & Sprott, David E. & Miyazaki, Anthony D., 2003. "Unit price usage knowledge: Conceptualization and empirical assessment," Journal of Business Research, Elsevier, vol. 56(5), pages 367-377, May.
    18. Xu, Yunjie (Calvin) & Kim, Hee-Woong, 2008. "Order Effect and Vendor Inspection in Online Comparison Shopping," Journal of Retailing, Elsevier, vol. 84(4), pages 477-486.
    19. Brett Danaher & Michael D. Smith & Rahul Telang, 2014. "Piracy and Copyright Enforcement Mechanisms," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 25-61.
    20. Robert Zeithammer & Peter Lenk, 2006. "Bayesian estimation of multivariate-normal models when dimensions are absent," Quantitative Marketing and Economics (QME), Springer, vol. 4(3), pages 241-265, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joinma:v:39:y:2017:i:c:p:69-88. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-interactive-marketing/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.