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Time- and price-based product differentiation in hybrid distribution with stockout-based substitution

Author

Listed:
  • Ramzi Hammami

    (ESC [Rennes] - ESC Rennes School of Business)

  • Erfan Asgari

    (G-SCOP_GCSP - Gestion et Conduite des Systèmes de Production - G-SCOP - Laboratoire des sciences pour la conception, l'optimisation et la production - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Yannick Frein

    (G-SCOP_GCSP - Gestion et Conduite des Systèmes de Production - G-SCOP - Laboratoire des sciences pour la conception, l'optimisation et la production - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Imen Nouira

    (ESC [Rennes] - ESC Rennes School of Business)

Abstract

A delivery mix that includes delivery from stock and drop-shipping is of interest to many internet retailers. We consider a retailer serving a time- and price-sensitive market with two substitutable products that differ in the guaranteed delivery time and price, an express product (delivered from the stock) and a regular product (drop-shipped). In case of stockout, customers may switch from the express product to the regular product. We study how to differentiate the products in terms of delivery times and prices and how to determine the stock level to maximize the retailer's expected profit while satisfying service constraints. We solve different variants of the problem and derive insights into the optimal retailer's strategy. In addition, we study the impact of stockout-based substitution. This paper is the first to investigate time- and price-based differentiation along with inventory decisions for a retailer who relies on a hybrid distribution to satisfy a time- and price-sensitive demand subject to stockout-based substitution. When prices and stock are fixed, in addition to minimum and maximum time differentiations, a medium differentiation strategy may be optimal but depends on the stock level. When only prices are fixed, there exists a price differentiation limit below which a minimum time differentiation is optimal, and above which only the express product should be offered. For the general model, numerical experiments show that a higher stockout-based substitution leads to greater time differentiation (which is consistent with the results of previous models) and more stock. However, this would not impact the price differentiation.

Suggested Citation

  • Ramzi Hammami & Erfan Asgari & Yannick Frein & Imen Nouira, 2022. "Time- and price-based product differentiation in hybrid distribution with stockout-based substitution," Post-Print hal-03696900, HAL.
    • Handle: RePEc:hal:journl:hal-03696900
    DOI: 10.1016/j.ejor.2021.08.042
    Note: View the original document on HAL open archive server: https://rennes-sb.hal.science/hal-03696900
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    References listed on IDEAS

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    1. Lin Tian & Asoo J. Vakharia & Yinliang (Ricky) Tan & Yifan Xu, 2018. "Marketplace, Reseller, or Hybrid: Strategic Analysis of an Emerging E‐Commerce Model," Production and Operations Management, Production and Operations Management Society, vol. 27(8), pages 1595-1610, August.
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    4. Sayid Albana, Abduh & Frein, Yannick & Hammami, Ramzi, 2018. "Effect of a lead time-dependent cost on lead time quotation, pricing, and capacity decisions in a stochastic make-to-order system with endogenous demand," International Journal of Production Economics, Elsevier, vol. 203(C), pages 83-95.
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    Cited by:

    1. Kiczmachowska Ewa E. & de Pourbaix Paweł & Jemielniak Dariusz, 2023. "Price Differentiation in Online and Offline Retail: An Empirical Study of Current Practices," Marketing of Scientific and Research Organizations, Sciendo, vol. 48(2), pages 1-16, June.

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