Shipping surcharges and LSQ: pricing the last mile

Abstract

PurposePricing the shipping surcharge is a major strategic decision for online retailers, and free shipping promotions are becoming more common among online retailers. The purpose of this research is to examine the effect of last mile pricing strategies on customer attraction and retention in the hypercompetitive online retailing industry. Specifically, this paper investigates the effect of partitioning the shipping surcharge on consumer logistics service quality (LSQ) perceptions and, in turn, purchase behavior.Design/methodology/approachEmploying signaling theory and expectation–disconfirmation theory, hypotheses are derived for two specific points in an online purchase scenario: prepurchase and following a logistics disruption. The hypotheses are tested using a scenario-based experiment with manipulations for the level of shipping surcharge partitioning and the presence of a logistics disruption.FindingsThe results suggest that partitioned shipping surcharges influence prepurchase expectations of LSQ satisfaction and amplify the negative effects of logistics disruptions. This, in turn, drives the purchase and repurchase intentions.Practical implicationsThe findings inform online retailers of the perceptual and behavioral effects of last mile pricing strategies. Specifically, this research demonstrates how and under what conditioning partitioning the shipping surcharge can influence the attraction and retention of online customers.Originality/valueThis study integrates pricing and LSQ research to assess the black box of consumer purchase behavior. This is one of the first studies to empirically contrast the effects of last mile pricing strategies on consumer expectations and perceptions of LSQ.