How does online shopping affect offline price sensitivity?

TL;DR

This study investigates how adopting online shopping channels influences consumers' offline price sensitivity, revealing increased sensitivity especially in low switching cost categories, based on transaction data from a Brazilian retailer.

Contribution

It provides empirical evidence that online adoption significantly increases offline price sensitivity, highlighting the cross-channel effects in consumer behavior and pricing strategies.

Findings

Offline price sensitivity increases after online adoption in most categories.

Price sensitivity is especially heightened for low switching cost products.

Results emphasize the importance of considering cross-channel effects in retail pricing.

Abstract

The rapid rise of e-commerce has transformed consumer behavior, prompting questions about how online adoption influences offline shopping. We examine whether consumers who adopt a retailer's online shopping channels become more price-sensitive in their subsequent offline purchases with that retailer. Using transaction-level data from a large Brazilian pet supplies retailer operating both online and offline, we compare "adopters" -- customers who began shopping online after a period of offline-only purchasing -- with "non-adopters" who remained offline-only. We estimate a discrete choice logit model with individual-level heterogeneity, based on an algorithm that can handle both high-dimensional fixed effects and price endogeneity. We then apply a staggered difference-in-differences approach to the estimated price elasticities and obtain the Average Treatment Effect on the Treated (ATT). We find that offline price sensitivity increases significantly after online adoption in three out of four product categories, particularly in items with low switching costs, such as pet hygiene. These results underscore the importance of recognizing cross-channel effects in consumer behavior and contribute to the literature on pricing and multichannel retailing by identifying online adoption as a key driver of offline price sensitivity.