Exploratory analysis of free shipping policies of online retailers

Online retailers (or Internet divisions of brick and mortar retailers) often offer shipping discounts (for example “free shipping on orders above $150”) to entice customers. The premise is that the retailer will attract more customers and these customers will likely buy more per order to avail the shipping discount, increasing total revenues and profits. In parallel, the retailer must also plan the replenishment of items sold during the free shipping promotion. This paper provides an exploratory model that analyzes (a) what form a retailer should use the free shipping promotion, and in parallel, (b) how the retailer should plan for replenishment from their suppliers.