| Although free shipping started out as a temporary marketing ploy to attract online shoppers to Internet sites during the 1999 holiday season, it has now be-come an integral part of doing business for many business-to-business (B2B) and business-to-consumer (B2C) companies. Free shipping offers by eBusiness compa-nies have become an effective means of attracting and keeping customers. Many business-to-consumer and business-to-business (B2B) companies now offer free shipping to buyers who spend more than a specific amount.Choosing a high cut-off level may result in some lost business for the seller since the buyers would have to spend more money than they initially intended in order to qualify for free shipping. On the other hand, setting a low cutoff point may entice a buyer to increase her purchase quantity and may generate higher gross revenues but this may also be costly for the seller since he has to absorb the shipping costs.Thus, the seller must choose a best cutoff level for maximize profits.In this paper, under condition of economic order quantity model, we first establish a free shipping optimal model to compute the least order size from the supplier's perspective, and then extend the model to the case of the price all-unit-discount and transport costs discount. A solution method to solve the model is given, and the condition under which the free ship model can be used and how much benefit could be made is theoretically analyzed. At last,we extend the model to the case of supply chain with multiple retails. |
PDF Full Text Request