Joline Uichanco, What Are You Thinking About?
INTERVIEWED BY TERRY KOSDROSKY
As retailers pursue both e-commerce and brick-and-mortar sales, more are turning to what's known as an "omnichannel" strategy. When done right, an omnichannel approach allows customers to browse and buy however they want — at the store, online, or even a combination of the two. But this presents a number of challenges to retailers merging two channels into one, particularly with pricing. Fortunately, Joline Uichanco, professor of technology and operations, has taken a look at this problem and developed a new analytical model that should help retailers manage both channels effectively.
Q: What Are You Thinking About?
A: Melding E-Commerce with Bricks and Mortar
How to make omnichannel strategies work better. In my research, I have found that omnichannel retailers can use coordinated channel prices to increase their overall market share and to boost their profits. An omnichannel retailer’s market share and profit tend to increase as e-commerce becomes more attractive. But there’s a limit in how much the optimal market share can grow, which is reached once e-commerce sales hit capacity limits in the retailer’s e-commerce fulfillment centers (EFCs). Since adding physical space is extremely expensive, retailers can use their stores to become mini-EFCs.
That’s easier said than done, since many retailers still use single-channel pricing models that assume separate inventories for e-commerce and brick stores. In our research, we developed an omnichannel pricing analytics model that considers store inventory as a shared resource between channels. This is the first research we are aware of to develop analytic models geared toward omnichannel operations. We show from simulations on data of a major consumer electronics retailer that by setting the optimal channel prices as determined by our omnichannel model, the retailer can increase its revenues by as much as 6-12 percent.
Why is this interesting to you?
I became interested in omnichannel retail operations when I began working with several retailers who wanted to plan their pricing and e-commerce fulfillment around their new omnichannel initiatives. “Omnichannel” has become a buzzword in the retail industry, but as I found out, many companies are still grappling with what it means and how to make the most out of it.
What are the practical implications for industry?
The retail industry has been seeing double-digit growth in e-commerce sales for the past few years. In order to take advantage of this, many retailers have turned toward an omnichannel strategy, but they might not be realizing the maximum potential possible because their pricing process is still based on single-channel thinking. We saw from our simulations that there’s a lot of money left on the table that can be captured by new omnichannel analytic models.