Online Retailer’s Contingent Free-Shipping Decisions under Large-Scale Promotions Considering Delayed Delivery

ABSTRACT

Large-scale promotions lead to a huge number of orders, and the quantity of deliveries grows sharply, which puts considerable strain on cities’ logistics and imposes high related shipping costs. To alleviate these consequences, in this paper we provide a new contingent free shipping policy with delayed delivery (DD-CFS) for an online retailer during large-scale promotions and study its CFS threshold decisions, considering consumers’ different sensitivities to delivery time delays.We start by analyzing a consumer’s purchasing decision based on consumer utility theory. Next, we establish a mathematical model to help the online retailer find the optimal CFS threshold to maximize its expected profit. Finally, we analyze the benefit of delayed delivery to the online retailer and conduct a sensitivity analysis to examine the impacts of important parameters on the online retailer’s CFS threshold decisions, profit, and the value of the delayed delivery. We find that the DD-CFS policy can lead to more profits during the large-scale promotions period compared with the traditional CFS policy. As the delayed delivery time and the consumer’s negative attitude towards delayed delivery time increase, the online retailer should reduce the low CFS threshold value. On the other hand, as the shipping fee and the consumer’s negative attitude towards the shipping fee increase, the online retailer should raise the high and low CFS threshold values.