Wednesday’s talk to be delivered by Dr. Anant Balakrishnan, McCombs School of Business, University of Texas at Austin
10 March, 2017, Bengaluru: The Office of Research and Publications (R&P) at IIM Bangalore will be hosting a research seminar on ‘Membership has its Benefits: Subscription Pricing for Free Delivery Services’ on March 15 (Wednesday), 2017, from 11.30 am, at Classroom P22. The talk will be delivered by Dr. Anant Balakrishnan, McCombs School of Business, University of Texas at Austin.
Dr. Anant Balakrishnan is the Associate Dean for Research and holds the Kenneth M. and Susan T. Jastrow, II Chair at the McCombs School of Business. He has previously held faculty appointments in the business schools at MIT, Penn State, and Purdue. He holds a Ph.D. from MIT, and B. Tech (Electronics) and MBA degrees from IIT and IIM. Dr. Balakrishnan’s research and teaching interests include operations and supply chain management, management science, and telecommunications. His research focuses on developing effective optimization models and methods to support planning and managerial decision making for operations, logistics, and telecommunications. Dr. Balakrishnan has worked closely with many manufacturing and service firms, and has published in leading journals such as Management Science, Networks, Operations Research, Transportation Science, Manufacturing & Service Operations Management, and Mathematical Programming.
Background of talk: In recent years, many internet retailers have supplemented their traditional pay-for-delivery (PFD) pricing by introducing membership plans that provide free delivery services for a fixed annual subscription fee. Intuitively, these free-delivery-subscription (FDS) plans are likely to attract precisely those consumers for whom the delivery costs exceed the subscription fee. Indeed, data from leading internet retailers show that their actual annual delivery costs can be as high as twice the revenues they get from delivery charges and subscription fees. Why then do retailers offer FDS plans? To understand how the FDS option can increase firm profits, a novel utility-based model has been developed that highlights two main advantages, observed in practice, of introducing a FDS plan, namely, the ‘lift’ in a current customer’s demand when she subscribes to the FDS plan instead of purchasing using the PFD option, and the possibility of attracting new consumers. The modeling framework considers heterogeneity among consumers along two dimensions – their utility for the product and their preference (opportunity cost) for purchasing from the firm using the PFD option. Only mild assumptions were imposed, and particular utility functions or distributions of opportunity cost were not required. For this general setting, it is demonstrated that economic reasons alone suffice to explain the lift in demand, without assuming any separate behavioural factors. It is shown that offering the FDS option increases firm profits even though the optimal subscription fee is not sufficient to cover the firm’s actual shipping cost. Moreover, the FDS option also benefits consumers. For the FDS option, the two strategies of either introducing a single ‘Universal’ plan or offering multiple ‘Tiered’ plans (with varying subscription fees and free delivery limits) have been considered. The analysis of these strategies, augmented with computational results, yields several interesting managerial insights on the drivers of the optimal policy, profits, and market share, and their sensitivity to product, consumer, and market characteristics. The approach and results also apply to other related contexts such as subscription pricing for information goods and access services.
Topic: Membership has its Benefits: Subscription Pricing for Free Delivery Services
Speaker: Dr. Anant Balakrishnan, McCombs School of Business, University of Texas at Austin
Date: Wednesday, March 15, 2017
Time: 11.30 am onwards
Venue: Classroom P22
Wednesday’s talk to be delivered by Dr. Anant Balakrishnan, McCombs School of Business, University of Texas at Austin
10 March, 2017, Bengaluru: The Office of Research and Publications (R&P) at IIM Bangalore will be hosting a research seminar on ‘Membership has its Benefits: Subscription Pricing for Free Delivery Services’ on March 15 (Wednesday), 2017, from 11.30 am, at Classroom P22. The talk will be delivered by Dr. Anant Balakrishnan, McCombs School of Business, University of Texas at Austin.
Dr. Anant Balakrishnan is the Associate Dean for Research and holds the Kenneth M. and Susan T. Jastrow, II Chair at the McCombs School of Business. He has previously held faculty appointments in the business schools at MIT, Penn State, and Purdue. He holds a Ph.D. from MIT, and B. Tech (Electronics) and MBA degrees from IIT and IIM. Dr. Balakrishnan’s research and teaching interests include operations and supply chain management, management science, and telecommunications. His research focuses on developing effective optimization models and methods to support planning and managerial decision making for operations, logistics, and telecommunications. Dr. Balakrishnan has worked closely with many manufacturing and service firms, and has published in leading journals such as Management Science, Networks, Operations Research, Transportation Science, Manufacturing & Service Operations Management, and Mathematical Programming.
Background of talk: In recent years, many internet retailers have supplemented their traditional pay-for-delivery (PFD) pricing by introducing membership plans that provide free delivery services for a fixed annual subscription fee. Intuitively, these free-delivery-subscription (FDS) plans are likely to attract precisely those consumers for whom the delivery costs exceed the subscription fee. Indeed, data from leading internet retailers show that their actual annual delivery costs can be as high as twice the revenues they get from delivery charges and subscription fees. Why then do retailers offer FDS plans? To understand how the FDS option can increase firm profits, a novel utility-based model has been developed that highlights two main advantages, observed in practice, of introducing a FDS plan, namely, the ‘lift’ in a current customer’s demand when she subscribes to the FDS plan instead of purchasing using the PFD option, and the possibility of attracting new consumers. The modeling framework considers heterogeneity among consumers along two dimensions – their utility for the product and their preference (opportunity cost) for purchasing from the firm using the PFD option. Only mild assumptions were imposed, and particular utility functions or distributions of opportunity cost were not required. For this general setting, it is demonstrated that economic reasons alone suffice to explain the lift in demand, without assuming any separate behavioural factors. It is shown that offering the FDS option increases firm profits even though the optimal subscription fee is not sufficient to cover the firm’s actual shipping cost. Moreover, the FDS option also benefits consumers. For the FDS option, the two strategies of either introducing a single ‘Universal’ plan or offering multiple ‘Tiered’ plans (with varying subscription fees and free delivery limits) have been considered. The analysis of these strategies, augmented with computational results, yields several interesting managerial insights on the drivers of the optimal policy, profits, and market share, and their sensitivity to product, consumer, and market characteristics. The approach and results also apply to other related contexts such as subscription pricing for information goods and access services.
Topic: Membership has its Benefits: Subscription Pricing for Free Delivery Services
Speaker: Dr. Anant Balakrishnan, McCombs School of Business, University of Texas at Austin
Date: Wednesday, March 15, 2017
Time: 11.30 am onwards
Venue: Classroom P22