Event Details

Professor Rui Sousa of Catolica Porto Business School, will present a seminar to the Management Science Department.

Authors:

Stanley Lim¹, Elliot Rabinovich², Rui Sousa[RS1] ³, Park Sungho⁴

¹Michigan State University, ²Arizona State University,

³Catolica Porto Business School, ⁴Seoul National University

Abstract:

We examine transaction-level data from an omnichannel grocery retailer to study the impact of home-delivery subscription service on retail revenue and operating costs across online (home-delivery and click-and-collect) and offline channels. We further quantify the consumer heterogeneity of these effects to identify determinants of subscription profitability and derive a minimum order value that guarantees this profitability. We find that consumers decrease their weekly spending on home-delivery fees by 6.70% post-subscription. However, they also increase their average total weekly spending on groceries by 30% (combining all channels). This is driven primarily by increases in product spending through the home-delivery channel at the expense of other channels. We identify changes in order frequency and number of items per order as the mechanisms behind this cannibalization. These mechanisms also increase the retailer’s order picking and delivery costs, resulting in an average 3% residual gross margin. Nevertheless, our analysis of individual consumers reveals that for many of them, these increases in costs exceed the revenue gains obtained by the retailer post-subscription. To correct for these imbalances, we contribute a procedure to identify a minimum order value required for home deliveries in the subscription program. Overall, our results show that the economic impact of delivery subscription programs is rooted in behavioural drivers leading consumers to increase their consumption and offset the sunk costs they incur from the upfront fees they pay when joining these programs. This impact is also reflected in consumers’ behavioural changes to reduce the costs of transacting with the retailer post-subscription.

Bio (Rui Sousa):

Rui Sousa is Full Professor of Operations Management at Católica Porto Business School, Catholic University of Portugal. He holds a PhD from London Business School and is a proud alumnus of the MSc in Operational Research of the University of Lancaster. Rui is honorary Fellow of the European Operations Management Association, having served in the Board of this association for six years. He has served as Dean, President of the Scientific Council and Department Chair at Catolica Porto Business School, among other roles. His research has won several awards and has been published in leading international journals, including the Journal of Operations Management, Production and Operations Management, International Journal of Operations & Production Management, Decision Sciences and the Journal of Service Research. Rui is Associate Editor for the Journal of Operations Management and the International Journal of Operations & Production Management. He has taught at the London Business School, London School of Economics and is invited lecturer of EIASM (European Institute for Advanced Studies in Management, Brussels). Rui is Director of the Service Management Lab and has worked with a number of leading organizations, including Rank Xerox, Siemens, Ministry of Finance of France, EDP (major Portuguese electricity utility), Sonae (largest Portuguese retailer), among others.

[RS1]Presenting author