Decision Models On Refunding And Charging For Order Cancellations In B2C Online Fresh Grocery Retail

Fresh groceries are a kind of special necessity for people’s daily life.In recent years,with the rapid development of fresh e-commerce in China,online shopping has gradually become an important way for people to buy fresh goods,especially since the outbreak of COVID-19 in 2020,and the orders of major fresh e-commerce enterprises have increased rapidly.Fresh groceries are perishable and vulnerable,so the demand for fresh e-commerce operations is very high,which often leads to quite high order fulfillment costs.While enjoying the benefits and preferential convenience of online grocery shopping,people often encounter the dilemma of canceling orders due to changes in plans.In practice,the phenomenon of “easy to place an order,but hard to refund it” occurs repeatedly,and reflects the interest contradiction between buyers and sellers behind the high loss and high disturbance caused by the interruption in the order fulfillment process,which has an extremely adverse impact on the economic benefits and social image of fresh e-retailers,and has gradually become a prominent problem faced by the fast-growing fresh B2 C online retail industry.How to deal with the canceled orders scientifically and effectively,has become an important subject that is of great concern relative to business performance and sustainable development.Managing order cancellations involve interrelated factors such as the retailer’s fulfillment cost and consumers’ behavior,and the key is to control the negative impact of the orders canceled by consumers.However,the traditional revenue management model based mainly on capacitated resource pricing and marginal revenue estimation cannot apply to this new problem of the associated fulfillment cost loss,which poses a new challenge to the revenue management model in the context of fresh grocery online retail business.Given the characteristics and influencing factors relative to order cancellations,this paper tries to enable both “right orders” and “right cancellations”.Under the theoretical framework of revenue management,by comprehensively applying theories of behavioral science,marketing science,and analytic methods of mathematical economics,the decision-making process of “how to refund” and “how much to refund” is explored based on the analysis of the order fulfillment process combined with consumer behavioral preferences,a decision-making model for the optimal policy of cancellations steered with losses of order fulfillment cost is formulated,and then a tiered refund rate decision-making model is further proposed until finally generate the optimal refund policy and charging scheme.The main research work of this paper is as follows:(1)The associated impacts and decision-making process of refunding and charging for order cancellations are analyzed.Firstly,the order fulfillment cost in operating fresh grocery e-retail business and its correlations to the canceled order are defined and characterized.Secondly,the consumer behaviors on order cancellations are examined.Then,according to the inherent logic and the associations between the above factors and the optimization goal,the decision-making process is put forward to gradually model from refunding policy to charging rate,which forms the general idea of solving the problem systematically.(2)The decision model for the optimal policy of order cancellation is formulated,which steers losses due to the existance of nontrivial fulfillment costs in B2 C online fresh grocery retailing.This model considers the interests of consumers,aims at optimizing the retailer’s revenue,and analyzes the optimal policy to resolve “how to refund” for order cancellations.Furthermore,the optimal policies under the two extreme cases of excessive and trivial fulfillment costs are discussed.Finally,numerical experiments are carried out to explore the influence of the multiple parameter variations on retailers’ expected revenue and the optimal solution.(3)The two-tiered refund decision model of order cancellations of B2 C online fresh grocery retailing is developed with the consideration of consumers’ cancellation behavior.Based on the optimization of order cancellation policy,by combining the piecewise step-up pattern of the fulfillment cost to consumers’ behavioral preferences,the Hotelling model is introduced to depict consumers’ cancellation behavior.The tiered refund model is proposed to further optimize the retailer’s revenue,and the two-tiered optimal solutions of refunding and charging for order cancellations are resolved successively.Finally,the sensitivity of the model is put into action on an experimental basis.(4)Model validations are carried out through numerical examples.Based on the practice of online fresh grocery retail business,the applicability and effectiveness of the proposed models are validated under randomly generated numerical samples.According to the computational results,managerial insights are provided to assist decision-makers in dealing with order cancellations in practice.This study provides a theoretical basis and analytical tool for further understanding of complex cancellation behaviors to deal with order cancellations scientifically.It also provides a new method to solve complex management decision-making problems involving interrelated multiple factors with the goal of revenue optimization.This work is conducive to enriching and developing revenue management theory and expanding the research field and boundary of conventional revenue management.The results can provide decision support for fresh grocery e-tailers to make a scientific and effective refund and charging scheme on order cancellations,and provide managerial insights for enterprises with nontrivial order fulfillment costs,strong timelines,and similar characteristics in the emerging e-commerce environment,to protect and promote the healthy and sustainable development of related industries in our country.