Impact of Web-Based e-Commerce on Channel Strategy

The existing literature and industry trends suggest that web-based channels are fast becoming an integral part of the traditionally offline retailers' overall channel strategy. This paper takes a game theoretic approach to study the impact of web-based e-commerce on the choice of distribution channel strategy by the retailers. The current practice by most firms is to adopt a multi-channel strategy, which includes both web-based channels and preexisting offline channels. Our analysis validates this trend by identifying it as one of the equilibriums of the game, resulting from the competitive pressure induces by the other retailers. However, a more interesting outcome from our analysis is that there are other possible outcomes. The other possible outcomes include one where some sellers adopt a coordinated dual channel (i.e., both online and offline) strategy while the others continue selling through traditional offline channels, and another one where all the sellers switch to online channels. The latter outcome is unlikely to occur for industries where traditionally offline sellers have invested heavily in distribution-specific assets. However, it does provide an explanation for new web-based sellers' reluctance to include offline channels in their overall channel strategy.