Improving Online Retailers’ Profit in an Online Shopping Festival: Benefits of Integrating Pricing and Logistics Decisions

Online shopping festivals (OSFs) are among the most important promotional activities in the online retail industry. While OSFs offer customers significant discounts and enhance online retailers’ performance, they also cause severe logistics challenges. This paper focuses on the operational management of OSFs. To help online retailers increase profits and mitigate logistics challenges, we examine the solution of jointly considering the product pricing, temporary warehouse location, and order fulfillment operations. We develop an optimization model for the problem which is shown to be NP-hard. An efficient solution method is proposed to obtain near-optimal solutions within reasonable computational time. Extensive numerical experiments are conducted to evaluate the method and solutions. By using the optimization model, we address a number of crucial questions emerging from the OSFs and derive managerial insights. For example, we find that the popular strategy that charges customers a distance-dependent fee for order shipment is suboptimal in most cases, since such a fee would largely limit online retailers to adjust the demand of customers, especially those in remote areas.