From cart to delivery: deciphering shipping and return influence on e-tailer strategies in digital marketplace

This study delves into the strategic decision-making of an e-tailer operating under the Newsvendor model, with a focus on optimizing order quantity and return service charge (RSC) in the context of distinct shipping policies. Our research primarily addresses the trade-offs between a Fee-Based Shipping (FBS) and a Zero-Fee Delivery (ZFD) for a single product. The analysis reveals that the incremental revenue from selling one more unit is precisely offset by the risk and cost of overstocking. Additionally, the salvage value highlights opportunities to minimize the financial impacts of unsold inventory. The allure of free shipping in the ZFD policy often boosts consumer appeal and potentially increases sales, even though it is coupled with a higher RSC—a cost that consumers might not immediately perceive. Expanding the scope, the study incorporates competing substitute products and develops a mixed integer nonlinear 0–1 programming model. To effectively solve this model, we introduce a conjugate gradient projection iterative algorithm, establishing the feasibility of identifying optimal decisions within this complex framework. Our findings also highlight that the pronounced influence of refund-demand sensitivity reveals that customers are highly responsive to RSC policy, particularly when evaluating substitute products. Shopee’s approach to RSC, while showing relative insensitivity to fluctuations in price and shipping fee sensitivities, demonstrates heightened responsiveness to refund-demand sensitivities. These insights are instrumental for e-commerce entities like Shopee platform, enabling them to adeptly navigate and adapt within the rapidly evolving landscape of online retail, bolstered by data-driven strategic approaches.