Optimal Strategies of the Online-to-Offline Instant Delivery Service of Grocery Retailers

SAGE Open, Volume 13, Issue 4, October-December 2023.
The advantages of an O2O instant delivery service over the traditional retail model for grocery retailers in the local market lie in the ability to increase sales by expanding consumer channels. This study aims to explore how merchants can optimize their pricing and delivery service decisions, including order delivery fees, range, and starting price, to maximize profit with the adoption of instant delivery services. Using the Stackelberg game model, the research examines the retailers’ optimal decision-making within the classical Hotelling linear city model while considering a more realistic cost differentiation between online and offline services. The analysis incorporates variations in the number of consumer purchases and geographic locations. The study finds that increasing product prices while maintaining zero delivery fees consistently outperforms charging delivery fees while keeping prices constant in terms of their impact on retailers. Additionally, rarely-discussed aspects like starting delivery price and delivery range are also considered. Comparing parameter variations between the traditional retail model and the O2O instant delivery model leads to three primary conclusions. Firstly, the cost disparity between online and offline services significantly affects the optimal price and profit for the retailer. Secondly, when the cost of online service is slightly higher, setting a starting delivery price can enhance retailers’ profits compared to not having a starting price. Finally, the study outlines three strategies for implementing the O2O instant delivery model and suggests that defining a reasonable delivery range can help merchants reduce costs, improve delivery efficiency, and ultimately increase profits.Plain Language SummaryThe effect of O2O instant delivery on retailersPurpose- This paper discusses how traditional retailers can increase profitability through O2O just-in-time delivery services, and proposes effective measures that retailers can take when faced with the problems of price, delivery fees, starting prices, and delivery range settings. Design/methodology/approach- The article focuses on consumers and retailers, and we set up a retailer-driven Stackelberg game to analyze the strategies that retailers should choose to achieve dominance. Findings-First, the optimal price and profit of the retailer are influenced by the cost disparity between online and offline services; second, when the cost of online service is slightly higher—perhaps due to increasing platform commissions—establishing a starting delivery price can enhance retailers’ profits compared to a scenario where no starting price is set; finally, the study delineates the selection criteria for three strategies when implementing the O2O instant delivery model, suggesting that defining a reasonable delivery range can help merchants reduce costs, enhance delivery efficiency, and ultimately, yield higher profits. Practical implications –First, it makes sense to avoid losses as traditional grocery retailers consider how to offer online ordering and instant offline delivery services to time-sensitive consumers. Merchants should take into account the difference between online and offline service costs. Secondly, the delivery fee is a key factor that affects both the consumer’s willingness to buy and the merchant’s profit, so the merchant should consider it carefully. Finally, consumers choose O2O instant delivery on the premise of higher efficiency and quality, so we set delivery to consumers within a certain range, which can not only improve the delivery quality but also reduce the delivery cost. limitations – First, the article does not discuss the retailer’s competition. Second, the research scrutinizes the retailers’ optimal decision-making within the classical Hotelling linear city model.

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