Common delivery or fast delivery: optimal pricing decisions of online retailers with rebate policy

Abstract

PurposeThe confirmation of receipt of orders by consumers means that the online retailer actually receives the payments on many retail platforms (e.g. Taobao). In order to recoup funds as soon as possible, the retailer will take steps (e.g. improving the level of delivery and adopting a rebate policy) to encourage consumers to confirm receipt earlier. It is significant for the retailer to identify an appropriate strategy and determine the optimal product price. To address the above issues, this paper examines and compares the pricing strategies and profits under different strategies to show some managerial insights for the retailer's decision-making.Design/methodology/approachIn this paper, the authors discuss four models, i.e. adopting common delivery and offering consumers no rebates, adopting common delivery and offering rebates, adopting fast delivery and offering no rebates and adopting fast delivery and offering rebates, which the retailer may consider. Under different models, consumer utility and firm's profit structure are disparate. After comparing the retailer's profits under four models, the optimal strategy, profit and product price are obtained.FindingsSome interesting results are as follows. When the cost of fast delivery is not very high, improving the level of delivery would bring more profit to the retailer and create a positive impact on consumers. Interestingly, our results also show that offering proper rebates to stimulate consumers to confirm receipt early only serves to improve the profit only when the motivation of consumers to confirm the receipt is very low. Moreover, the authors find that a higher level of delivery services can promote the implementation of the rebate policy to improve the retailer's earnings.Originality/valueThis paper is the first study on the transaction mode of retail platforms and the problem of confirming receipt by a model-based method.