Channel encroachment strategy through pure online or combined offline retailing.

This article examines the entry strategies of new online retailers competing against an incumbent pure online retailer, focusing on whether the entrant should adopt a purely online strategy (strategy O) or a combined online and offline (O2O) strategy involving physical experience stores (strategy B). Using a Hotelling model to capture consumers' asymmetric horizontal preferences favoring the incumbent, the study analyzes equilibrium outcomes under Nash competition for both strategies across different market coverage scenarios (partial, full, and multi-equilibrium markets). The findings indicate that while the incumbent generally holds an advantage under pure online competition, the entrant can effectively counter this by adopting the mixed O2O strategy, especially when consumers are sensitive to offline services; however, the incumbent's advantage does not always translate into higher profits, as intensified competition can reduce profitability for both parties. The paper concludes that the entrant's optimal strategy depends critically on consumer sensitivity to offline services and the incumbent's horizontal preference advantage, with offline services typically benefiting the entrant within the same market type but potentially harming it when market coverage types differ. These insights provide guidance for retailers on strategic channel choices when entering competitive online markets with incumbents.