Date of Original Version

5-2008

Type

Working Paper

Abstract or Table of Contents

Many firms introduce electronic channels in addition to their traditional sales channels and observe increasing buyer adoption rates immediately after the introduction but subsequent declines. Firms must understand the factors that drive channel adoption decisions and how these factors change over time and across buyers. Using panel data pertaining to the purchase histories of 683 buyers over a 43-month period, we estimate a buyer response model that incorporates buyer heterogeneity, channel inertia, and dynamic pricing. We find that channel adoption behavior is both heterogeneous and dynamic, and the firm’s allocation decisions, if not aligned with buyer behavior, can alienate buyers. Based on the parameter estimates from the buyer response model, we propose an alternative channel allocation would enable firms to attract more buyers to the e-channel and improve revenues. Channel adoption increases when firms understand and account for individual buyers’ channel adoption behavior.