Willingness to pay for last-mile delivery service: the case of omnichannel grocery retailing in the Mekong Delta, Vietnam

Abstract

The rapid growth of e-grocery has driven an increasing demand for last-mile delivery services (LMD), making it an important element in the retailing supply chain. However, little is known about the customers’ willingness to pay (WTP) for this service in developing markets. Most of existing studies have focused on developed countries, and overlooked the heterogeneity in customers’ behavior. This study aims to estimate the distributions of customers’ WTP for LMD’s attributes and explore the sources of customer heterogeneity in the Mekong Delta, Vietnam. The data was collected from a discrete choice experiment on 438 shoppers in the Mekong Delta, Vietnam. The authors use the generalized multinomial logit model in the WTP space to estimate the distributions of customers’ WTP for LMD’s attributes, allowing for individual taste and scale heterogeneity. Around 75% of consumers have a positive WTP for home delivery. The demand for LMD is found to be highly sensitive to shipping fees. In addition, the WTP for each attribute also largely varies across consumers due to the heterogeneity in both customers’ unobserved and observed characteristics. Specifically, unobserved heterogeneity arises from differences in tastes as well as variations in the error components across choice situations while observed heterogeneity includes differences in demographic characteristics and order value. This study highlights the need to account for both taste and scale heterogeneity in modeling consumer choice of LMD. Findings also imply that retailers had better offer customized LMD for omnichannel grocery shoppers rather than one-size-fits-all one.