Optimal service decisions in an omni-channel with buy-online-and-pick-up-in-store

Omni-channel retailing has emerged as a major trend in e-commerce. The strategy of buy-online-and-pick-up-in-store (BOPS) has been applied in a variety of contexts. Customers make optimal purchasing decisions depending on the services provided by purchasing channels. Several studies have applied theoretical framework to analyze the effect of BOPS on omni-channel operations; however, they rarely considered the impact of BOPS on channel services. To fill the gap, in this study, we propose an analytical model consisting of a manufacturer with an online channel and an independent retailer. We examine the optimal service decisions in an omni-channel with BOPS and analyze the interaction between the service decisions and the BOPS strategy. Our analysis shows that BOPS attracts both existing and potential customers, whereas all channels will reduce their service levels after introducing BOPS when the cost of increasing online service levels is high. Further, we find that BOPS should be introduced when the service levels of all channels are low, and it may not be suitable for the case in which all channels’ service levels are high. While the adoption of BOPS is beneficial to the retailer, it will be disadvantageous for the manufacturer. Given that the total profit of members will increase after BOPS is introduced in some cases, we design a two-part traffic contract to ensure a win-win situation for all participants.