The dynamic impact of buying "fit products" on customer learning and profitability in multichannel settings

Many retailers enable customers to purchase both online and offline. We posit that the type of product purchased in this multichannel environment, “fit” or “non-fit”, impacts customer learning and profitability, and that purchasing fit products offline is especially effective at creating high value customers. Using longitudinal transactional data from a national outdoor-product retail chain, we use a multivariate hidden Markov model (HMM) to investigate how customers choose both product and channel in a multichannel environment. The HMM identifies two states – an “exploratory” state characterized by higher likelihood to purchase fit products offline, lower purchase amount, and longer inter-purchase time; and a “trusting” state where customers are more likely to buy all product types online, buy more, and buy more frequently. We find that fit-product purchases accelerate customer migration to the trusting state, especially if those purchases are made offline. Marketing communications play a key role by enhancing the likelihood the customer migrates to the trusting state. Our findings identify a strategic role that fit products and retail stores play in customer development, and show that marketing can help implement this strategy