Optimal checkout strategies for online retailers

Growth in online retailing has driven retailers to focus on optimizing the consumers’ shopping journey. One of the most important aspects of online shopping is the checkout process offered by the retailer. This paper focuses on factors influencing retailers’ choice of providing either a flexible checkout or a restricted checkout option to consumers. We define a checkout strategy as flexible when consumers can purchase items in their shopping cart either as a guest or by logging into their account. In contrast, with a restricted checkout strategy, the consumers must log in to the account to make purchases. With a game-theoretic model and duopolistic framework, the current study identifies conditions in which online retailers might adopt symmetric strategies and those in which two ex-ante symmetric retailers might prefer asymmetric strategies. The analysis suggests that the relative proportion of privacy-conscious (PC) vs. convenience-conscious consumers (CC), additional utility due to account registration, reduction in transaction cost, and additional revenue due to targetability are the crucial determinants of the strategies adopted by online retailers.

Specifically, we show that retailers adopt a restricted checkout strategy when additional revenues due to targeted advertising are relatively high. Retailers adopt a flexible checkout strategy when the proportion of CC consumers and additional revenues due to targeted advertising are relatively lower. Furthermore, an asymmetric equilibrium may also exist when the proportion of CC consumers is relatively high and additional revenues due to targeted advertising are in the intermediate range. Our modeling framework provides a consumer demand-based (rather than cost-based) justification as a plausible explanation for why we observe ex-ante identical retailers offering distinct checkout strategies.