With the popularity of omnichannel retailing, consumers are sophisticated enough to make strategic channel decisions, considering the possible disappointment for an unexpected outcome induced by various uncertainties from online and offline channels. Value uncertainty online can trigger low-value disappointment, and availability uncertainty offline may cause stock-out disappointment. This study characterizes the effect of consumers’ anticipated disappointment aversion behavior on the optimal pricing decisions of retailers with or without inventory constraint in the omnichannel environment. When a retailer operates in dual-channel and faces offline inventory constraint, the concern for consumers’ homogeneous disappointment aversion changes the threshold above which the retailer implement different channel pricing strategies. Then, we show how the negative impact of disappointment on profit and market can be mitigated by physical showroom mechanism, which is increasingly adopted by omnichannel management. Introduction of a cost-effective physical showroom expands the market by relaxing the restriction of stock-out disappointment and improves profit as long as consumers’ low-value disappointment is high enough. Interestingly, the low-value disappointment benefits the omnichannel in expanding the market coverage by alleviating the constraint exerted by stockout disappointment. Further discussions regarding the disappointment behavior are derived from the extension of consumers’ heterogeneity in disappointment-aversion.

Introduction

With the increasing digitalization in marketing and retailing, the retail landscape continues to change with the integration of new phenomena, such as mobile shopping and social media, in online and offline channels. A new concept called online-tooffline is increasingly becoming popular. As consumers gradually take advantage of the seamless and unified shopping experience offered by the emerging business models, new opportunities and challenges have emerged for retailers (Bell et al., 2014; Harsha et al., 2016). Based on existing online and offline channel management, an increasing number of companies are transforming into omnichannel operations, a new retail mode that emphasizes the interplay between channels and consumers. For instance, Wal-Mart, the worlds largest retailer and a model brick-and-mortar store, has explored its business online with new strategies. Wal-Mart offers a new service through which customers can order goods online and pay for them at a nearby store with cash. New features of the Wal-Mart App, such as savings catcher (a new price-check function) and Geo-fence, offer a convenient and interactive shopping experience. The solely e-commerce store of the New York-based eyeglasses brand Warby Parker has supplemented its operation with the establishment of stores for product display and brand promotion. Even dual-channel retailers have explored the supply and demand interactions from crossing channels and integrating price and inventory-sharing decisions to promote omnichannel efficiency and performance. Therefore, to thrive in this new environment, retailers of all types should take a broader perspective on channels and reexamine their strategies for delivering information and products to consumers, who move among channels in their search and buying process (Bell et al., 2014; Verhoef et al., 2015).