Heterogeneity in Consumers Willingness to Pay for Home Delivery Service in Grocery Retailing

Abstract

It is likely to be impossible to design a one-size-fit-all home delivery service due to the heterogeneity in consumers’ requirements. In this paper, we employ a mixed logit model in willingness to pay (WTP) space to estimate the distributions of consumers’ WTP for attributes of home delivery service in the context of grocery retailing. A choice-based experiment was conducted for data collection. The empirical results indicate that consumers’ WTP for the delivery mode and the timeliness of delivery are extremely heterogeneous, but consumers are quite homogenous in WTP for faster and more convenient time-based delivery service. Findings from the study propose that customization strategy is the one that grocery retailers and logistics service providers may use to deal with heterogeneity in consumers preferences and WTP for attributes of home delivery when designing and pricing the added-value service.