Title: Omnichannel Grocery Retailing: A Balancing Act between Fulfillment Fees and Operations Management
Abstract: Omnichannel grocery retailers can fulfill online orders by allowing consumers to collect their orders at the retailers’ stores (click and collect or “CC” fulfillment) or have their orders delivered from the stores to their homes (home or “H” fulfillment). Because the former option does not involve costly last-mile deliveries to consumers’ homes, retailers have sought to make it more attractive by lowering its associ-ated fulfillment fees to consumers. We analyze the economic value of this strategy. We offer new insights into the influence of CC fee reductions on consumer online shopping behavior and how this behavior impacts fulfillment costs in an omnichannel environment. Moreover, we provide an understanding of the mechanisms that drive the economic value that omnichannel retailers derive from this strategy which implies trading-off revenue from consumers’ expenditures on fulfillment service versus products. These contributions inform the development of pricing strategies to improve the economic value of fulfillment services in omnichannel retailing. We find that lower CC fees increase revenues from additional demand for products. However, they are ineffective in shifting ordering ac-tivity from H to CC fulfillment, and thereby in decreasing the costs incurred by the retailer in carrying out H orders’ deliveries. Moreover, the contribution to profitability from the gains in product revenue obtained from reductions in CC fees are observed to be much lower than the losses caused by (1) the revenue no longer collected from the CC fees and (2) the additional operating costs at the stores nec-essary to fulfill higher CC order volumes.
Publication Year: 2021
Publication Date: 2021-08-01
Language: en
Type: article
Indexed In: ['crossref']
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