Optimizing marketer costs and consumer benefits across “clicks” and “bricks”

The Internet has revolutionized the retailing landscape and how goods and services are sold and distributed to consumers. One avenue of significant growth in online selling comes from multichannel retailers who offer products in stores as well as over the Web. These hybrids may leverage their “brick” locations by allowing customers to pick up or return orders purchased online at retail stores. This option lets Web-based buyers avoid added shipping costs and long package carrier lead times, albeit at a cost to retailers. To examine the viability of this strategy, we develop a mathematical model that examines the cost and value of providing in-store pickup and return. The model is used to determine the best subset of brick-and-mortar stores to handle in-store pickup and return demand. One of the principal takeaways is that not all retail stores should be offering in-store pickups and/or returns. Our computational results show optimizing the set of pickup and return locations may reduce system cost over baseline marketing policies where these services are set up at all or none of a retailer’s stores. In addition, we show that retailers can significantly improve some consumer benefits at little extra cost.