Understanding the Impact of Marketing Actions in Traditional Channels on the Internet: Evidence from a Large Scale Field Exper

This paper studies the conflicts and complementarities between traditional marketing channels, such as a catalog, and the Internet channel. Two effects are modeled: a potential conflict due to substitution between channels, and a potential complementarity, due to increased overall awareness of the company’s products. A large-scale field experiment was conducted with a retailer of apparel and outdoor gear that has both a catalog channel and an Internet channel to formally test these hypotheses. A sample of 9,824 of the company’s “Best” customers was selected together with a separate sample of 9,683 of the company’s “Good” customers. Customers from each of these samples were then randomly assigned to equal-sized Test and Control groups, yielding a total of four groups. We find that marketing actions in the catalog channel do indeed have a significant impact on the demand via the Internet. Interestingly, sending additional catalogs to Best customers tends to crowd out sales on the Internet, while sending catalogs to Good customers tends to increase Internet sales. Furthermore, sending additional catalogs to Good customers who are also prior Internet users led to a big increase in demand through the Internet and a smaller increase through the catalog channel. On the other hand, sending additional catalogs to Best customers who are prior Internet users caused such a large shift in demand from the Internet to the catalog channel that the net effect on overall demand was actually negative. Part of the explanation for this effect is that Internet orders are larger in size and more frequently have items from different categories. We interpret this as evidence that the Internet channel, because of its user-friendly searching, browsing and recommendation capabilities, may lead to more impulse purchasing compared with the catalog channel. Our results suggest that retailers who ignore cross channel conflicts and complements will send too many catalogs to their “best” customers, too few to their “good” customers, and miss opportunities to drive customers to the Internet channel. Acknowledgements: We thank participants at the 2004 Workshop on Information Systems and Economics (WISE) for valuable comments on this paper. Generous financial support was provided by the Center for eBusiness at MIT under a grant from Amazon.com.