Reports

The Dark Side of Mobile Channel Expansion Strategies

Ju-Yeon Lee, Mengzhou Zhuang, Irina V. Kozlenkova, and Eric (Er) Fang, 2016, 16-119

Responding to the exponential growth of smartphone usage, many firms have added mobile channels to their existing online channels. In this study, Ju-Yeon Lee, Mengzhou Zhuang, Irina Kozlenkova, and Eric Fang investigate the potential adverse consequences of a mobile channel expansion strategy.

Study 1, using data from a leading online shopping platform, shows that the mobile shopping ratio (proportion of the purchase occasions conducted on mobile devices relative to total online purchase occasions) exhibits an inverted U-shaped relationship with sales performance. This is due to the combined effects of increased transaction frequency and decreased transaction spending (i.e., mobile customers shop more often but spend less).

The researchers find that heavy mobile shoppers yield higher sales by buying more frequently overall, but they spend less on each purchase, such that customers with moderate mobile shopping ratio levels (i.e., multichannel shoppers) are more beneficial than heavy or light mobile shoppers. A post hoc analysis affirms that customers are most profitable when they choose mobile devices about once out of every three online shopping occasions.

Transaction-level analysis also shows that orders through mobile devices contain 20% cheaper and 7% fewer products than orders through other online devices. These negative effects are mitigated when customers purchase low-risk products or buy from high-quality sellers.

Study 2, analyzing secondary data from about 200 publicly traded U.S. firms, shows that the effect of a mobile expansion strategy on stock returns is positive when the mobile traffic ratio (proportion of visits customers make on mobile devices relative to total online visits) is low, but becomes increasingly negative at higher levels.

The negative effect on stock returns at high mobile traffic ratio levels is alleviated in firms with high operating efficiency or low website cognitive load. Firms can maximize their financial performance when about half of their online visitors enter through smartphones, but in a firm with a low website cognitive load, performance does not diminish until the mobile traffic ratio reaches 64%.

Overall, these findings suggest that managers should avoid overextending into mobile channels and instead seek to maintain a balance across different online channels.  Further, when undertaking a mobile channel expansion strategy, companies should (1) prominently display indications of seller quality, such as consumer reviews, to facilitate decision-making, especially for risky products, (2) improve operating efficiency, and (3) develop websites that do not demand much cognitive effort from consumers to navigate via mobile channels.

Ju-Yeon Lee is Assistant Professor of Marketing, College of Business and Economics, Lehigh University. Mengzhou Zhuang is a doctoral student in marketing, College of Business, University of Illinois at Urbana-Champaign. Irina V. Kozlenkova is Assistant Professor of Marketing, Eli Broad College of Business, Michigan State University. Eric (Er) Fang is Associate Professor of Marketing and James Tower Faculty Fellow, University of Illinois at Urbana-Champaign, and Distinguished Visiting Professor of Marketing, Nanjing University, China.

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