The Value of Online Interactions for Store Execution

Problem definition: Omnichannel retailers interact with customers both online and offline. So far, they have used this richer information to optimize the sales process by designing the right channel and supply chain structures, and by personalizing offer, pricing and promotions. We advance an additional dimension of omnichannel value: retailers can use online clickstreams to better understand customer needs, and optimize store layouts to maximize conversion. Methodology/results: We develop a model where in-store purchases depend on the customer’s product shopping list, and the effort required to locate and reach the products within the store. Product location in the store thus drives conversion. We then apply our model to a large home improvement retailer and find that preferences of store visitors are revealed by nearby online traffic to product pages, and hard-to-reach locations lead to lower conversion. We also do not find evidence of cross-selling. Finally, we optimize product-location assignments using our demand model and find that putting higher-interest and higher-price items in the most effective locations can increase revenues by about 10%. Managerial implications: Our results show how using online clickstream information for optimizing offline operations can create significant value. We also show that webrooming can be beneficial even in the absence of cross-selling.