Adding pay-on-delivery to pay-to-order: The value of two payment schemes to online sellers

摘要

In this study, we focus on two main payment options in e-commerce: pay-to-order (consumers pay for products when making an order online) and pay-on-delivery (consumers pay for products after delivery). While pay-to-order is the basic payment option in e-commerce, pay-on-delivery becomes more welcomed by consumers as an additional option. Using analytical modeling, we characterize the e-tailer’s optimal pricing and inventory decisions under two scenarios: 1) only with pay-to-order, and 2) dual payment scheme (both with pay-to-order and pay-on-delivery). Based on the optimal operation strategy, we compare the e-tailer’s profit under these two scenarios and find the best time for e-tailer to offer each payment scheme. Finally, numerical examples are given to prove the theory results and provide management suggestions for e-tailers to improve performance.