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Optimal pricing strategies for delivery alliance in online retailing platform

Yufei Yan (School of Business Administration, Southwestern University of Finance and Economics, Chengdu, Sichuan, China)
Zuoliang Ye (International Business College, Southwestern University of Finance and Economics, Chengdu, China)
Miao Sun (Southwestern University of Finance and Economics, Chengdu, Sichuan, China)

Nankai Business Review International

ISSN: 2040-8749

Article publication date: 5 August 2019

Abstract

Purpose

Nowadays, some online retailing platforms emerge to integrate transport capacity to provide standard distribution service for sellers. Such an integrated form of service is defined as delivery alliance (DA). To have a better understanding of how to price the service, this study aims to fixate on the seller’s problems and builds a series of profit maximization models in accordance with the two-sided market pricing theory within a platform business model.

Design/methodology/approach

In the present study, some optimization models are built in the two-sided market type and the optimal solutions are found in a three-dimensional decision space. By using the basic model as the benchmark, some optimization problems of DA in realistic situations are discussed. Particularly, a power-law-distribution model is established to deal with the uncertainty in forecasting. Also, a price-sensitive model and a loss-aversion model are presented to describe the various reactions of sellers to charging modes. Finally, some combined situations are discussed and the strategies are compared under the mentioned models.

Findings

By selecting the basic model as the benchmark, the specific pricing strategies are found for each context to yield the optimal profits. The flexibility of pricing strategy in the basic model and rigid pricing strategies in extended models, are discussed. As a result, the guidelines for the online retailing platforms are developed on designing and pricing the DA service.

Research limitations/implications

First, it would be interesting to expand the pricing plan of the platform. For instance, menu pricing and quantity discount have not been considered, which are common in practice. The time discounting has also been ignored. If the time value were calculated, the contract fees would be more critical due to the earliest of collecting money. Finally, those joiners who have huge order sizes are crucial for the ecosystem indeed, but arouse no attention. While in reality, they may have more power to bargain with the platform. Thus, how the platform competition affects the pricing strategies needs future research.

Originality/value

The optimal pricing strategies under these models are analytically found out, and it is shown that the presented models result in the same scale of joiners and profits in optimization. This suggests that DA works well in various behavioral contexts. This also suggests that DA is a significant controller in service quality improvement. Then, the optimal pricing strategies are compared among all the models. During this, it is discovered that the realistic contexts might reduce the profit, whereas an appropriate pricing strategy can pull this back without loss of service quality.

Keywords

Acknowledgements

The present study has been supported by National Nature Science Foundation of China under Grant No. 71271172, the Humanities and Social Sciences Fund of China’s Ministry of Education under Grant No.18YJA630071, the Fundamental Research Funds for the Central Universities under Grant No. JBK1807116 and No. JBK1807K12.

Citation

Yan, Y., Ye, Z. and Sun, M. (2019), "Optimal pricing strategies for delivery alliance in online retailing platform", Nankai Business Review International, Vol. 10 No. 3, pp. 447-464. https://doi.org/10.1108/NBRI-02-2018-0018

Publisher

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Emerald Publishing Limited

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