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Optimizing shipping-fee schedules to maximize e-tailer profits

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  • Jiang, Yuanchun
  • Shang, Jennifer
  • Liu, Yezheng

Abstract

Shipping-fee charges by online retailers have been known to impact customers' order incidence and cart size. While the importance of managing shipping fees is well documented, few studies have provided normative guidelines for e-tailers to determine optimal shipping-fee schedules. This paper provides two nonlinear mixed-integer programming models to optimize e-tailers' shipping-fee charges for single and multiple product transactions. Given e-tailers' cost information and heterogeneity across consumers' reservation prices and delivery time requirements, our models aim to concurrently determine the optimal shipping-fee schedules and product selling prices. To solve the sophisticated models in real-time, we develop search techniques based on the concept of genetic algorithms. Numerical studies indicate that the proposed methods offer attractive product prices and low shipping charges. The proposed models not only meet the online requirement of instant response time, but also draw more customers and enhance e-tailer profitability.

Suggested Citation

  • Jiang, Yuanchun & Shang, Jennifer & Liu, Yezheng, 2013. "Optimizing shipping-fee schedules to maximize e-tailer profits," International Journal of Production Economics, Elsevier, vol. 146(2), pages 634-645.
    • Handle: RePEc:eee:proeco:v:146:y:2013:i:2:p:634-645
    DOI: 10.1016/j.ijpe.2013.08.012
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    References listed on IDEAS

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    Cited by:

    1. Wagenaar, J.C. & Fragkos, I. & Faro, W.L.C., 2023. "Transportation asset acquisition under a newsvendor model with cutting-stock restrictions: Approximation and decomposition algorithms," Other publications TiSEM 97eddbd0-6e34-489c-b27d-9, Tilburg University, School of Economics and Management.
    2. Kim, T.Y. & Dekker, R. & Heij, C., 2016. "The value of express delivery services for cross-border e-commerce in European Union markets," Econometric Institute Research Papers EI2016-12, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    3. Shao, Xiao-Feng, 2017. "Free or calculated shipping: Impact of delivery cost on supply chains moving to online retailing," International Journal of Production Economics, Elsevier, vol. 191(C), pages 267-277.
    4. Xiaxia Ma & Wenliang Bian & Xiqing Yang & Shengnan Niu & Yongming Cai & Jie Guan & Wenbin Wang, 2022. "Online Retailer’s Contingent Free-Shipping Decisions under Large-Scale Promotions Considering Delayed Delivery," Sustainability, MDPI, vol. 14(17), pages 1-22, August.

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