Risk profile and consumer shopping behavior in electronic and traditional channels

Empirical research of consumer online shopping behavior has generally established that risk associated with online shopping is an important factor when consumers consider whether to shop online or in a brick-and-mortar store. Literature also indicates the importance of information search and product evaluation in consumer purchasing decisions. Building on these results, this paper develops an economic model that captures consumer shopping channel choices based on shopping channel characteristics and consumer risk profiles—risk-neutral or riskaverse. Analyses of results show that after making purchases through one channel, electronic or traditional, risk-averse consumers tend to be more loyal customers than risk-neutral consumers. Observations from the model, confirmed by numerical examples, show that under certain channel characteristic values, the two types of consumers exhibit split channel behavior—riskneutral consumers prefer one channel and risk-averse consumers prefer the other. However, risk-neutral consumers are not always more likely to prefer electronic channel than risk-averse consumers. Implications for retailer pricing strategies are discussed.