Advances in Retail Operations

Chair: Renzo Akkerman (WUR)

Title: Simultaneous customer interaction in online booking systems for attended home delivery
Speaker: Niels Agatz (Erasmus University Rotterdam)

Abstract: In many delivery and service settings, the customer must be home when the provider arrives. If the customer is not at home, the delivery or service fails and the provider may have to return at a later point, needlessly creating additional vehicle miles and emission. To prevent such missed deliveries, it is increasingly common for providers to let customers choose from a menu of narrow time slots in which the delivery or service will take place. An important decision problem in this setting is which time slots to offer to maximize the expected number of placed orders while guaranteeing a feasible delivery schedule. In this paper, we identify several issues that may arise when multiple customers simultaneously interact with a booking system. That is, customers may arrive while the system is still processing a previous customer or while another customer is still deciding on his or her preferred time slot. Such simultaneous interactions lead to additional waiting time and invalid service offers, as we demonstrate in this paper. We argue that state-of- the-art procedures are not yet equipped to deal with this and present new approaches for this purpose. Our findings provide insights that may help to improve the design of current online booking systems, and opens up new areas of research.

Title: Exploiting product substitution in replenishment to reduce food waste
Speaker: Rene Haijema (Wageningen University and Research)

Abstract: Retailers offer large assortments of fresh (packed) products. Some products are substitute to another product but not necessarily the other way around and maybe not to all consumers. In this paper we investigate whether retail profit and waste can be improved by exploiting the willingness of consumers to substitute. We focus on two products with a short shelf life of three or five periods. Retail replenishment decisions are modelled by a policy with order-up-to levels for each product. Profit maximizing values of the order-up-to levels can be obtained by simulation-based optimization, using a model that describes the interaction between the inventory levels of both products. As such an approach is much more complex and time-consuming than a single-product model, order-up-to levels are traditionally set independent of each other. We investigate how much profit can be gained when order-up-to levels are optimized simultaneously while taking product substitution into account. It is shown by simulation that in many settings (of pure FIFO withdrawal or a mix of FIFO and LIFO), both product waste and profit may increase. We show that product waste can be reduced greatly without jeopardizing profit levels. In addition, we present an efficient heuristic search procedure that finds optimal order up to levels for both products without too much additional effort.

Title: Offering memories to sell goods? Pricing and welfare implications of experiential retail
Speaker: Nevin Mutlu (Eindhoven University of Technology)

Abstract: In an environment where consumers’ rising valuation of Instagrammable memories drives their spending from products to experiences, retailers start offering innovative experiences to attract consumers to their stores. Although experiential stores may attract many consumers, it is not obvious if retailers can benefit from such crowds to raise their profits. Further, welfare implications of these experiences for consumers are not clear in both monopoly and competitive settings. In this research, we investigate the pricing and welfare implications of experiences that are being offered in today’s retail locations. Being the first to study this new retail format analytically, our paper sheds light on the conditions under which experiential retailing can be beneficial both for retailers and for consumers. We use a random utility consumer choice model to model consumer preferences in monopoly and duopoly settings. For the latter, where retailers compete with experiences along with main product prices, we pose a game theoretic model to analyze the equilibrium prices, profits, and consumer welfare. We provide both structural results and managerial insights via a unified approach that tackles various problem settings. We show that high quality experiences can be detrimental for retailers and/or consumers due to high prices and a large number of consumers who visit the retailer solely for the experience (i.e., free-riders). In an environment where experiential retailing is the mainstream practice among retailers, both retailers and consumers can benefit from this approach. Otherwise, when only a single retailer adopts this approach, experiences have the potential to benefit solely the competing retailer.