Relationship retailing using online and store channels

We study the optimal pricing strategies for a multichannel retailer who sells two products categories (primary and secondary), each in two channels (store and online). Customers learn about the secondary product during their visit to one of the retail channels to buy the primary product. However, they can evaluate the product better with a physical inspection in a store. Hence, the customers visiting the store are able to find products that are better suited to their tastes and so are willing to pay more for the secondary product. Thus the retailer must set the prices of the primary product not only to maximize profits from that product, but also to increase the number of customers who visit the store and consequently are willing to pay higher for the secondary product. Using the price optimization problem for the retailer, we derive useful managerial insights on optimal pricing and consequent channel usage behavior of customers.