About shipping and logistic course in India.

I believe that there's a mathematical model behind the free shipping / paid shipping offered by most e-commerce websites in India. Can anybody throw some light?

• Initially many ecommerce players in India offered free shipping. Then, there was 300/30 model i.e. free shipping if goods are worth more than 300 INR else add 30 INR extra. Then, they have 500/50 model i.e. free shipping if goods are worth more than 500 INR else add 50 INR extra. Also, ZopNow and BigBasket have free shipping if goods are worth 500 INR and 1000 INR respectively.

• Answer:

  Yes there is and the calculation revolves around the cost of acquisition of customer and the lifetime value of customer of acquired in a particular price range. Lets take a hypothetical situation : Consider a company : Say earlier there was no shipping charges and company decides to put a shipping charge of Rs 40 on orders less than 400. First of all we need to think what are the metric that will be impacted by this change: 1) You will lose some of new customers acquired 0-400 Range. Say earlier you acquired 1000 customers in this price range but after the introduction of shipping charges you acquire only 400. Loss of 600 Customer Per day 2) Some customer will move to a higher price bracket. From 0-400 to 400-600 to avoid shipping charges. Say earlier number of customers in 400-600 were 600 and it rose to 725. Customer moved to Higher price bracket. 125 3) How has the ASV of the order changed in 0-600 range. Say From 325-> 400 due to more people moving to a higher price bracket. 4) How much money is lost in fulfillment of the order below Rs 400. So total loss = 600-125 = 475 Customers Net Gain = a) Rs 40 for every transaction below 400. b) Rs (400-325)*Avg Margin % in Range 0-600*total order b/w 0-600 c) The fulfillment cost saved due to lost customers. If the cost of acquisition of customer is x. 475*x < a+b+c Then the move is good else it depends the Lifetime value of customers acquired at different price ranges. PS: A lot of other variables come into play 1) If the company has the option of Shipping multiple items in order together. 2) Are the charges collected on Order size or on every product. 3) Many variables will depend on the problem statement in hand but the crux of the problem is using the money saved to bring on at least as many Customers as lost in the process. Even if the New Customer Count is a little small it might be good to go ahead because the Customer Acquired at Higher Price range will generally have high Life Time Value. Hope this gives some in slight on how to approach the problem.