Fresh Price for the Fresh: Investigating Pricing and Demand Response on Grocery E-commerce Platform

Abstract

<p>Online grocery retailing is experiencing significant growth, driven by the increasing demand for fresh products with instant delivery. However, compared to durable products, the e-commerce platform faces unique challenges in understanding the dynamic nature of the market. On one hand, the demand for fresh products exhibits high-frequency fluctuations throughout a day due to local consumers’ dietary rhythms. On the other hand, fresh products incur higher costs for storage and preservation, and they can perish quickly, leading to substantial waste. This study investigates consumers’ heterogeneous price elasticity at different time especially when purchasing fresh products. Specifically, we focus on a leading fresh product supermarket, which provides a wide range of fresh products and instant delivery service. We employ double machine learning with instrument variables to address potential issues of high-dimensional confounders and price endogeneity. By identifying the price elasticity at different time windows, we seek to understand how local consumer’ price sensitivity on fresh food evolves throughout a day. We also explore heterogeneity across different categories, such as fruit, vegetables, meat and packaged food. Leveraging the identification results, we demonstrate the effectiveness of an inventory-based dynamic pricing strategy through simulation to maximizing daily profit, by striking a balance between revenue generation and the costs associated with waste.<br></p>