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2955. The Power of Perceived Value and Transformative Pricing in Online Food Delivery Platforms

Contributed abstract in session MA-59: Pricing and applications 3, stream Pricing and Revenue Management.

Monday, 8:30-10:00
Room: S08 (building: 101)

Authors (first author is the speaker)

1. Arvind Shroff
Operations Management, Indian Institute of Management Lucknow
2. Bhavinkumar Shah
Operations Management and Quantitative Techniques Area, Indian Institute of Management Indore

Abstract

Currently, Online Food Delivery (OFD) platforms like DoorDash, Zomato and UberEats dictate the delivery fee charged to customers for orders placed through them. This delivery fee is based on the order value and the distance traveled by the driver to complete the delivery. Pay-As-Asked (PAA) delivery pricing strategy is the name of this tactic. On the contrary, Pay-What-You-Want (PWYW) is an innovative pricing strategy that gives customers the final say over the price they are willing to pay based on how valuable they perceive the service. To investigate how the adoption of pay-what-you-want (PWYW) for delivery fee pricing affects the financial viability of OFD platforms, we present an analytical model. By dividing consumers into three groups—free riders, fair-minded consumers, and generous consumers—we are able to identify their social preferences for things like fairness and reciprocity. This allows us to determine the conditions under which PWYW might be more profitable for the platform than the typical PAA delivery pricing strategy. Our research suggests that to maximize platform profits when implementing a PWYW delivery fee, the OFD platform managers should work to reduce delivery costs as much as they can. Furthermore, we propose that platforms impose a minimum delivery fee that customers may use as a guideline when determining the fee they want to pay to prevent free riders from reducing profits under PWYW.

Keywords

Status: accepted

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