How Will the Internet of Things Affect Retailing?

July 26, 2021

Besides making purchasing more frictionless and convenient for certain consumers, adding an IoT channel can also make payment less salient, reducing intangible acquisition and replacement costs. The move offers opportunities for upsell/cross-sell or shopper enjoyment and engagement. However, retailers be warned, adding such a channel could decrease purchases by reducing consumer stockpiling. To determine how it might affect sales and what types of products benefit most, Panagiotis Adamopoulos, Vilma Todri and Anindya Ghose analyzed data from an online retailer that added an IoT channel. The channel was for a wide range of different products in different geographic markets and at different times, over a two-year period.

This is the first paper to study the impact of an IoT technology on product sales, drawing important theoretical and managerial implications and seeding new future research directions for devices and technologies largely automating the purchase process.

The price of the products was the same across all available selling channels, with no additional cost to consumers for utilizing the IoT channel. Taking advantage of the variability in this “natural quasi-experiment”, they compared sales for products available through the IoT channel (treatment) versus other, similar or substitute products (controls). Analysis revealed a statistically and economically significant increase in sales. This demonstrates the business value of having an IoT channel for retailers and brands.

Most of this effect came from increased demand from existing customers, rather than new customers attracted to the channel. The researchers also find that less expensive and more differentiated products benefited most from adding an IoT channel. This is true for experience and utilitarian goods but not search goods or hedonic items. By contrast, more substitutable products benefited less from the IoT channel. Further analysis revealed the underlying mechanism of these effects, drawing on mental accounting and automaticity theory.

Read the full working paper here.

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