Optimal Internet of Things Technology Adoption Decisions and Pricing Strategies for High-Traceability Logistics Services

Abstract

The Internet of Things (IoT) technology-based tracking system can reduce freight loss/damage during delivery, thereby avoiding wasting social resources. In this study, we address the issue of whether an E-retailer with a logistics arm should provide high-traceability logistics value-added service (based on IoT technology) in two customer segments and analyze their pricing decision. We found that companies always adopt IoT when equipment operation cost is low and not when the cost is high. Otherwise, the optimal IoT adoption strategy for a company depends on multiple factors, for example, the internal operation efficiency of a company. Providing high-traceability service as one kind of public service does not necessarily optimize social welfare even if the overall delivery failure is reduced. The customers’ preference for traceability significantly affects the company’s decision. Hence, we suggest that the company should implement a comprehensive investigation before launching a specific strategy.