Sooner or Later? Promising Delivery Speed in Online Retail

Ruomeng Cui · Zhikun Lu · Tianshu Sun · Joseph M. Golden

87 citations0/0 files storedManufacturing & Service Operations Management

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Supply Chain and Inventory Management Consumer Market Behavior and Pricing Urban and Freight Transport Logistics

Abstract

Abstract. Problem definition: Online retailers have to provide customers with an estimate of how fast an order can be delivered before they decide to make the purchase. Retailers can strategically adjust this delivery speed promise online without changing offline infrastructure, and doing so may fundamentally impact business outcomes. It can influence consumers’ purchasing decisions and postpurchase experiences, often in the opposite direction. On one hand, an aggressive (i.e., faster) delivery estimate could ensure that more customers meet their deadlines and thus, may increase their purchases ex ante. On the other hand, an aggressive estimate tends to overpromise, potentially leading to a longer than expected wait time, which can lower customer satisfaction and increase product returns ex post. In this research, we estimate the causal effect of retailers’ delivery speed promise on customer behaviors and business performance. Methodology/results: Collaborating with Collage.com , an online retailer that sells customized photo products across the United States, we exogenously varied the disclosed delivery speed estimates online while keeping the physical delivery speed unchanged. Using the difference-in-differences identification strategy, we find that a faster promise increases sales and profits, but it also increases product returns and reduces customer retention. In addition, we propose a data-driven model that uses the estimated parameters to optimize delivery promises to maximize customer lifetime value. Managerial implications: Our findings provide managerial insights and a data-driven policy that retailers can leverage to optimize and customize their delivery promises. Funding: T. Sun acknowledges research support from CKGSB Research Institute. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2021.0174 .

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2012Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information 1998Price, delivery time guarantees and capacity selection 2019Bike-Share Systems: Accessibility and Availability 2013Measuring the Effect of Queues on Customer Purchases 2015Waiting Patiently: An Empirical Study of Queue Abandonment in an Emergency Department 2019The Value of Rapid Delivery in Omnichannel Retailing 2004Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective 2014The role of physical distribution services as determinants of product returns in Internet retailing

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