Omnichannel expansion for traditional retailers: Considering consumers' privacy concerns

Abstract

Digital economy development is driving the profound revolution in omnichannel retail, yet digital technology inevitably raises privacy concerns. This paper examines the optimal pricing and service strategies for a traditional single‐channel retailer transitioning to omnichannel sales when the market has privacy issues. We construct a nonlinear constrained optimization model to discuss the retailer's optimal gains and pricing when faced with profit‐seeking and privacy‐sensitive consumers during the discount and full‐price periods. Besides, we analyze the influence of item privacy attributes and clients' profit‐seeking or strategic behavior. Several valuable findings are as follows. First, the product's privacy attributes significantly influence retailer's pricing decisions. High‐privacy value goods benefit them in the full‐price period, while common items with low‐privacy attributes are profitable in all sales periods. Second, profit‐seeking (myopic) consumers are the mainstay of the discount period, whereas privacy‐sensitive (strategic) consumers prefer to act in the full‐price period. Lastly, when supported by appropriate privacy services, the strategic actions of privacy consumers also help retailers to optimize profits.