Applications of pricing and revenue optimization in capacity management and logistics
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2023
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2566
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eng
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113 leaves
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b216701
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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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National Institute of Development Administration. Library and Information Center
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Pavarit Issarathipya (2023). Applications of pricing and revenue optimization in capacity management and logistics
. Retrieved from: https://repository.nida.ac.th/handle/662723737/6675.
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Applications of pricing and revenue optimization in capacity management and logistics
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Abstract
This dissertation explores the diverse applications of Pricing and Revenue Optimization (PRO) in the fields of capacity management and logistics. Specifically, it investigates PRO in two distinct contexts: capacity sharing between two competing firms and no-rush shipping reward program.
In the first context, the study examines the possibility for firms competing in the same market to willingly and profitably share their capacity. We consider two firms selling substitutable products in four different scenarios, according to their competition (noncompeting or competing) and capacity sharing (with or without capacity sharing option) situations. In each scenario, each firm’s optimal capacity sharing and retail pricing strategies are characterized. Our results indicate that the two firms are willing to share their capacity only when the capacity selling firm has sufficiently large capacity while the capacity buying firm has sufficiently small capacity. The firms' relative capacity in turn determine the optimal capacity sharing price, the exchanged capacity sharing quantity, and their retail prices in the market. Going against the common intuition, our results show that it can still be optimal for a firm to sell her capacity to her direct competitor even when she sets a capacity price lower than her retail price (i.e., she makes less per unit of capacity when selling it to the competitor rather than selling it in her own market). Furthermore, capacity sharing can cause the selling firm to willingly lower her retail price despite the smaller capacity she has left after selling some capacity to the competitor. We show that, when implemented appropriately, capacity sharing can mutually improve the competing firms' profit. In addition, when the two firms share capacity, the total sales to end customers in the market also increase, demonstrating the benefit of capacity sharing in enhancing the efficiency of demand fulfillment. Our results show, however, that the benefits of capacity sharing weaken when the intensity of competition escalates. Overall, this study suggests that capacity sharing is a viable and profitable mechanism to help firms selling substitutable products gain more profits and more effectively match their supplies with demand in the market.
In the second context, the study investigates how a no-rush shipping reward program, which offers a discount or a reward to a customer who chooses no-rush shipping for her online purchased items, can be utilized by an online seller to reduce shipping and expediting costs. In particular, we consider a setting in which an online seller has to ship two items to a customer. Each item can be shipped either on time or late, depending on its uncertain lead time. If an item is shipped late, the seller will incur a loss of customer goodwill unless the customer opts in to a no-rush shipping reward program and agrees to take a reward in exchange for potentially receiving an item late. To avoid shipping an item late, the seller also has an option to expedite an item at an additional cost. The seller's optimal decisions regarding whether to offer a no-rush shipping reward program on any items and whether to ship each item separately or together at a normal or expedited speed are characterized. Our results show that the number of items that the seller should offer the no-rush shipping reward program decreases as the amount of reward required to induce a customer opt-in increases. If the no-rush shipping reward program is offered on both items, then it is always optimal for the seller to consolidate the two items into a single shipment. However, if the no-rush shipping reward program is offered to none or only one of the items, it would be optimal for the seller to consolidate the shipment if and only if the shipping cost is sufficiently large. We demonstrate numerically that the cost savings realized from the no-rush shipping reward program are significant, especially when the expected wait time to receive an item is long, the expediting cost is large, but the normal shipping cost is small. This study suggests that a no-rush shipping reward program can help online sellers gain more flexibility in shipping management, which in turn effectively reduces operating and shipping costs as well as the environmental impact, while also meeting customers' expectation.
Overall, this dissertation contributes to the existing body of knowledge by offering insights into the application of PRO in capacity sharing between competing firms and the no-rush shipping reward programs. The results provide practical guidance for industry practitioners seeking to enhance their decisions in the dynamic and complex domains of capacity management and logistics.
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Thesis (Ph.D. (Business Administration))--National Institute of Development Administration, 2023