Pricing strategy for companies with mixed online and traditional retailing distribution markets

Purpose – The purpose of this paper is to provide a framework to help business marketers with a mixed online and traditional retail channel (multi‐channel company) to find the optimal pricing strategy and market structure in order to maximize their profits. Design/methodology/approach – A game theory model is developed to determine the optimal pricing strategy for the multi‐channel company. Findings – It was demonstrated that an optimal pricing strategy exists under different market structures for a multi‐channel company. When a company uses multiple channels to sell its product, the optimal pricing strategy is to use a low‐high pricing strategy if the online marginal cost is equal to or less than the traditional marginal cost, or a high‐low pricing strategy if the online marginal cost is far larger than the traditional marginal cost. Furthermore, in order to maximize its profit, the company using multiple channels should adopt channel integration as the optimal market structure. Research limitations/implications – The present study assumed that all consumers have perfect information. However, information with the consumers could be incomplete. It is recommended that future research explore the pricing strategy under incomplete information settings. Practical implications – The paper provides a very useful model framework, pricing strategy, and market structure for business managers who are using or planning to use multiple channels to sell their products. Originality/value – This paper fills a conceptual and practical gap for a structured analysis of the current state of knowledge about multi‐channel pricing strategies. It provides practical and solid advice and examples demonstrating the application of the different types of pricing strategies for business managers.