Internet shopping and physical distribution problems

The major issues related to Internet shopping have been extensively examined in numerous studies, including marketing, pricing, and payment, etc. (e.g. Pavitt, 1997;

Kiang et al., 2000; Peterson et al., 1997). O’cass and Fenech (2003) examined Internet user adoption of the Web for retail/purchase behavior. Burke (1997) noted that the home-shopping system eliminated drive time and checkout time and enabled shoppers to access distant stores and showed the retailing technology is most convenient when it matches shopping and media habits. Verhoef and Langerak (2001) identified delivery delay for ordered goods as major disadvantage of Internet shopping.

Previous studies examining the differences in consumer choice in the contexts Internet shopping and conventional shopping focused mainly on analyzing the pros and cons of Internet shopping or the influencing consumer intention to shop on the Internet using collected empirical data (e.g. Manski and Salomon, 1987; Koppelman et al., 1991;

Sim and Koi, 2002). Salomon and Koppelman (1988) established a framework of shopping behavior for examining consumer choices among in-home and out-of-home shopping modes. Their framework comprises a description of the shopping-purchasing process and hypotheses relating to influences on individual choices regarding alternative shopping modes.

Sherman and Topol (1996) investigated emerging technologies, including electronic retailing and interactive shopping, and their influences on consumers, retailers and manufacturers. Other studies examined the demographic and psycho-graphic characteristics of Internet shoppers using local shopper surveys (e.g.

Verhoef and Langerak, 2001; Raijas, 2002). Olson and Boyer (2003) investigated how end user viewpoints and characteristics, such as education and tenure in the workforce, influence use of the Internet as a purchasing avenue. Heim and Sinha (2001) provided

an empirical analysis which examined the relationship between customer loyalty and the order procurement and fulfillment processes of electronic retailers. They found that short delivery times have a significant influence on customer loyalty. Heim and Sinha (2002) further developed a taxonomy of service processes and attempted to link electronic service processes with customer ratings of service performance. They found that a positive and significant correlation between the ordering of the configurations in the taxonomy and consumer satisfaction with Web site aesthetics, production selection and product information, etc. Furthermore, Nagurney et al. (2001) proposed a network equilibrium framework for analyzing consumer preference for Internet shopping vs.

store shopping under an assumption of multicriteria decision makers.

On the supply side of Internet shopping, Huppertz (1999) concluded that the major problem in electronic commerce is that frequent small-sized orders lead to high transportation costs. Khouja (2001) proposed an optimal mix strategy of drop shipping and in-house inventory for e-retailers, and identified optimal solution of order quantity for in-house inventory to the drop-shipping model under uniform, exponential, and normal demand distributions. Moreover, Hsu et al. (2003) introduced a discriminating shipping strategy for Internet store operators that varies the optimal shipping cycles for different consumer locations and determined the optimal shipping cycles based on consumer demand and distance to the distribution center. The results show that the discriminating service strategy yields better objective values if the discrepancy of demand pattern is more apparent.

In another line of research, numerous studies have investigated physical distribution problems using analytical approaches (e.g. Burns et al., 1985; Blumenfeld et al., 1985). This research typically considered shipping problems under inelastic demand and focused on operating issues such as scheduling routing, and configuration

of physical distribution. However, little research has investigated the influence on logistics costs of time-dependent demand, demand-supply interaction and the 24-h nature of Internet shopping.

Recent studies have investigated carriers or providers issues and their effects on consumer services and operating strategies. Most of these empirical studies dealt with these issues by testing hypotheses. Rabinovich et al. (2003) investigated the impacts on the supply chain efficiency of information exchanges between e-retailers and end consumers. Rabinovich (2004) later examined a Internet retailer’s inventory liquidity and its relationship to the retailer’s ability to fulfill its guarantees, and found that Internet retailers should align inventory liquidity and delivery performance to fulfill economically consumer orders. Rabinovich and Bailey (2004) concluded that Internet retailers usually adopt revenue-maximizing strategies for their physical distribution pricing policies that reflect the physical distribution service quality they provide.

Esper et al. (2003) found that allowing consumers to choose a carrier leads to increased levels of anticipated satisfaction with the online experience and an increased willingness to buy.

Boyer et al. (2002) developed preliminary frameworks for analyzing e-services and found that the strategic operations choices regarding fit between delivery processes and products must play an important direct role in the consumer perceptions of delivery services. Chen (2001) investigated the benefits of a segmentation strategy in which price-delay combinations were available for several market segments. In Chen’s model, Poisson process was employed to describe consumer arrival at the selling process and identified that consumers are segmented according their willingness to pay for one unit of a product. Chen found that the benefit of market segmentation is large if more patient consumers are in the market. Table 2.4 summarizes main issues and

features and important results in literature on Internet shopping and physical distribution problems.

Table 2.4 Main issues, features and results in literature on Internet shopping and physical distribution problems

Authors Main issues and features Important results Burke (1997) Empirical study towards

Internet shopping Home-shopping system eliminated drive time and checkout time and enabled shoppers to access distant stores Olson and Boyer

(2003), Heim and Sinha (2001)

Empirical study towards Internet shopping

Short delivery times have a significant influence on customer loyalty

Heim and Sinha (2002)

Develop a taxonomy of service processes and attempted to link electronic service processes with customer ratings of service performance.

A positive and significant correlation between the ordering of the configurations in the taxonomy and consumer satisfaction with Web site aesthetics, production selection and product information

Hsu et al. (2003) Introduce a discriminating shipping strategy that varies the optimal shipping cycles for different consumer locations based on consumer demand and distance to the distribution center

The discriminating service strategy yields better objective values if the discrepancy of demand pattern is more apparent

Rabinovich et al.

(2003),

Investigate carriers or providers issues and their effects on consumer services and operating strategies

Retailers usually adopt

revenue-maximizing strategies for their physical distribution pricing policies, reflecting the physical distribution service quality they provide. Allowing consumers to choose a carrier leads to increased levels of anticipated satisfaction Chen (2001) Investigate benefits of a

segmentation strategy where price-delay combinations were available for several market segments

The benefit of market

segmentation is large if more patient consumers are in the market

Source: this study

Summary:

Previous empirical studies have investigated the impacts of delivery-related issues on consumer satisfaction with Internet shopping. However, the interaction of time-dependent consumer demand and logistics cost related to different delivery service strategies has seldom been investigated. Furthermore, while consumer demand for goods may increase by employing frequent and short delivery cycles, the extent depends on variations in consumer socioeconomic, temporal and spatial distribution and, furthermore, how Internet store operators set up service cycles during a given operating period of time. Although these issues have been previously addressed, there is currently no mathematical model that can determine an optimal delivery service strategy by integrating all issues.