Abstract:

With the rise of online shopping， shipping services provided by online retailers have become a key factor in consumers’ purchasing decisions. To accelerate the purchase of consumers， retailers often use contingent free-shipping offers as a marketing strategy. Under this model， consumers incur no shipping charge and enjoy free shipping as long as their order value exceeds a certain threshold； otherwise， they are charged a shipping fee. Consumers， being strategic， are motivated to buy additional items to qualify for free shipping. Therefore， it is crucial for retailers to determine the optimal online shipping strategy， considering the strategic behavior of consumers. Using a theoretical model between consumers and online retailers， both paid shipping services and contingent free-shipping services are analyzed， taking into account consumer behavior. How these two shipping options affect retailers’ decisions and identify the optimal shipping strategy is explored. The results show that retailers’ optimal shipping service depends not only on the fraction of consumers who have a high degree of recognition to merge but also on the price of the shipping service. To be specific， when there is a small fraction of consumers who have a high degree of recognition to merging， retailers will choose the contingent free-shipping service to consumers only if the price of the shipping service is high； otherwise， the paid shipping service. However， when there is a large fraction of consumers who have a high degree of recognition to merge， retailers will choose the contingent free-shipping service no matter how the price of the shipping service will be. Furthermore， retailers may set a higher threshold of free-shipping when the price of shipping service is lower. The results highlight that contingent free-shipping is not just a way for retailers to reduce the pressure of shipping expenses but a strategic tool that allows them to exploit consumer behavior to their advantage.

Key words: contingent free-shipping strategy, strategic consumers, merging behavior, free-shipping threshold