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

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  • 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.

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  • 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
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    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.

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