Channel Configuration and Pay-on-delivery Service with the Endogenous Delivery Lead Time

This paper investigates the manufacturer’s optimal channel configuration strategy when it provides a pay-on-delivery service directly to consumers through its on-line selling channel. Due to the delivery lead time, we assume that consumers will discount their future utility from the online channel. In particular, the pay-on-delivery service through the direct channel can induce a retailer to lower its price (pricing induction) and/or segment consumers by regulating their valuations of buying products through different channels (consumers segmentation). Furthermore, the firms’ equilibrium strategies are determined by the consumer’s sensitivity to the delivery time, delivery cost and marginal cost of the indirect channel. When selling through an indirect channel is much more costly, the manufacturer’s encroachment on the retail market can achieve Pareto improvement. Compared with the payment scheme of pay-before-delivery, the results show that the manufacturer’s encroachment is more aggressive in the pay-on-delivery scheme. Finally, we extend the pay-on-delivery scheme to different pricing sequences and consider the case in which consumers and the manufacturer have different discount factors.