Publication Date
Authored by
Tabjeel Ashraf, Alison Heuser
Advisor(s): Eva Ponce
Topic(s) Covered:
  • Retail
  • Transportation
  • Omnichannel
  • Fulfillment

E-commerce sales have grown exponentially since the introduction of the smart phone in 2007 and the trend is expected to continue.  As retailers enter e-commerce, the pressure to provide more and faster delivery options to the customer is increasing.  The resulting complexity and increased delivery speeds are often expensive.  Providing incentives to influence customers to choose no-rush delivery is one method by which retailers can seek to lower these logistics costs.  Previous studies have demonstrated that monetary incentives can influence behavior; many researchers have studied logistics costs models.  This study focuses on the fast fashion industry and combines research of consumer behavior with a logistics cost model to determine the effectiveness of incentives to drive cost savings.  Customers were surveyed for lead time decisions in the presence of varied monetary incentives to determine the impact of the incentive on consumer behavior.  The customers were asked about both basic items and trendy items to differentiate behavior between product categories.  Linear regression of this data showed that retailers need to provide an incentive of $1.18 per day of extra lead time to a customer purchasing a basic item and $1.14 per day of extra lead time to a customer purchasing a trendy item.  These incentives were used as an input cost to a delivery cost model. This model used the vehicle routing problem to estimate logistics costs.  The model compared the cost of routes with standard shipping to routes that included no-rush packages over one-week.  The results showed that it is possible to save an average of 3% to 32% in logistics costs depending on the percentage of customers who opt in to no-rush delivery.  This study showed that it is possible to use incentives to influence consumer behavior and that behavior can have an impact on the logistics costs.  It is critical to study both consumer behavior and logistics costs together for a retailer to determine the correct incentives to offer.