Assortment Control Unlocks the Value of Dynamic Pricing in Mixed Last-Mile Delivery

Abstract

The growth of e-commerce has intensified the need for last-mile delivery systems that can jointly manage customer choice and operational efficiency. We study the Dynamic Offering and Pricing of Mixed Delivery Options problem, in which a logistics service provider dynamically selects and prices attended home-delivery time slots and out-of-home pickup options for sequentially arriving customers. Each decision affects immediate revenue, customer acceptance, and the route-dependent fulfillment cost realized at the end of the booking horizon. We formulate DOPMDO as a finite-horizon Markov decision process and propose State-Value Anchored Pricing via Approximate Dynamic Programming. The method learns a continuation-value approximation on an aggregate state representation of the mixed-delivery system and uses accepted-versus-rejected value differences to estimate option-level opportunity costs. These opportunity costs are embedded in an anchored trust-region pricing problem around a calibrated fine-static benchmark. Computational experiments on the real-world Seattle instance show that SVAP--ADP increases mean episode profit by 7.0\% relative to current practice (95\% CI: 6.7--7.2\%), primarily by reducing terminal fulfillment cost while maintaining a stable home--locker--opt-out mix. Assortment-control experiments show that dynamic pricing is most effective when the menu exposes operationally valuable locker alternatives, with richer candidate pools delivering substantially larger gains than restricted nearest-locker menus. These results indicate that anticipatory pricing and assortment control are complementary: pricing steers customers toward lower-cost options, but the menu determines whether high-value consolidation opportunities are available in the first place.