Analysis of customer switching behavior in omni-channel retailing

Abstract

Omni-channel retailing is a recent approach that allows customers to purchase products from anywhere and return them anywhere and allows retailers to fulfill orders from anywhere. This flexibility improves the customer experience by integrating all channels, allows retailers to achieve more availability and drives the sales and traffic of the retailers. In this study, we consider two omni-channel implementations: (i) ship-from-store, and (ii) home delivery, by considering customer switching behavior across the sales channels. Store customers can be fulfilled in store or they can ask for home delivery. Online orders, on the other hand, can be shipped either from the fulfillment center or from any other store location that maximizes the overall profit of the retailer. We further consider that both store and online customers can switch across channels. We build a dynamic programming framework to investigate optimal fulfillment decisions for both online and store orders. We incorporate the uncertainty both in demand and in the cost of shipment to individual customers. We present our results through optimal fulfillment strategies and numerical experiments.