Retail Channel Strategy Of The Traditional Retailer Competing With A Pure Play Online Retailer

In recent years, China online retail market has developed rapidly, subverted the traditional business model and brought great convenience and benefits for consumers. The data shows that transaction sales of China online retail market in2013are￥1885.1billion,42.8%more than￥1320.5billion in2012and8.04%of the total retail sales of social consumer goods. And the report also predicts that China online retail market will continue growing rapidly and its sales will reach￥2786.1billion in2014.The main reason why business model of online retail attracts more and more consumers is the lower price of product in online retail channel than that in the traditional retail channel because of the lower operational cost in online channel than that in traditional retail channel. However, consumers usually perceive risks from shopping online because they cannot check the authenticity and applicability of the products by seeing, touching, feeling and trying on the products like shopping in a local store and they also worry about the leakage of personal information and the safety of money. The risks from shopping online lower consumption valuation of the products, i.e., consumer utility. Besides, consumers cannot experience the products to get immediate gratification and then buy and take them home immediately, which also lowers the consumer utility. The reduction in the consumer utility from shopping online is called the online disutility cost.Although the rapid development of e-commerce and online retail market faces the traditional retailers with the fierce competition from the pure play online retailers, it also creates new business opportunities for the traditional retailers. Many of traditional retailers has implemented the brick-and-click strategy by expanding business to online retail channel. Then, whether and when should a traditional retailer enter the online retail channel? If entering, what are the optimal prices of the products in the online and traditional retail channels? What is more, whether and when should the traditional retailer quit the traditional channel?In order to answer the problems above, the paper assumes the online disutility cost of consumers is heterogeneous and is uniformly distributed within the consumer population, constructs the pricing competition games between a traditional retailer and a pure play online retailer and derives the retail channel strategies of the traditional retailer.The main objective of this paper is to help the traditional retailers make immediate and right decisions to cope with the competition from the pure play online retailers and catch the new business opportunities for money with the development of the e-commerce and online retail market.