Please use this identifier to cite or link to this item: https://hdl.handle.net/10356/106422
Title: Customer differentiation with shipping as an ancillary service? free service, prioritization, and strategic delay
Authors: Sainathan, Arvind
Keywords: Business::Marketing
E-Commerce
Free-Shipping
Issue Date: 2017
Source: Sainathan, A. (2018). Customer differentiation with shipping as an ancillary service? free service, prioritization, and strategic delay. Decision Sciences, 49(4), 690-727. doi:10.1111/deci.12285
Series/Report no.: Decision Sciences
Abstract: A service provider/retailer offers ancillary service (e.g., shipping by an online retailer) to two types of customers, impatient and patient, who may be heterogeneous both in their delay sensitivities and service valuations. She can use prioritization and/or strategic delay to differentiate them by offering two service classes and charging different prices, potentially resulting in a split in which a single customer type selects both the classes. Her objective is to minimize cost while satisfying individual rationality and incentive compatibility conditions. We characterize the optimal solutions under both exogenous and endogenous capacities. We examine the conditions under which the following strategically important features of service delivery are optimal, and relate them to practical scenarios: (i) free service, (ii) single/differentiated service, (iii) split of customers, and (iv) strategic delay. We find that the presence of these features depends on (i) whether the retailer has limited or sufficient capacity and (ii) whether she sells fashion goods or staple products. A typical explanation for offering free service is that it increases demand from customers. We make an operational case for it by showing that even if demand does not change, free service is still optimal under some scenarios.
URI: https://hdl.handle.net/10356/106422
http://hdl.handle.net/10220/50041
ISSN: 0011-7315
DOI: http://dx.doi.org/10.1111/deci.12285
Rights: © 2017 Decision Sciences Institute (Published by Wiley). This is the peer reviewed version of the following article: Sainathan, A. (2018). Customer differentiation with shipping as an ancillary service? free service, prioritization, and strategic delay. Decision Sciences, 49(4), 690-727. doi:10.1111/deci.12285, which has been published in final form at http://dx.doi.org/10.1111/deci.12285. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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