Value of High-Quality Logistics: Evidence from a Clash between SF Express and Alibaba
34 Pages Posted: 28 Aug 2018 Last revised: 12 Oct 2018
Date Written: August 18, 2018
Consumers regard product delivery as an important service component that influences their shopping decisions on online retail platforms. Failing to ship products to customers in a timely and reliable manner will diminish customer experience and companies' profitability. In this research, we explore how much customers value a high-quality delivery experience when shopping online. Our identification strategy exploits a natural experiment: a clash between SF Express --- the largest private logistics service provider with the highest reputation in both speed and reliability in China --- and Alibaba --- the largest online retail platform in China. On June 1, 2017, SF Express unexpectedly blocked Alibaba's access to customers' parcel information, which led Alibaba to remove SF Express as a shipping option for customers several hours later on the same day. On June 3, 2017, the two parties fully resumed cooperation, in compliance with government regulation. Using a difference-in-differences design, we analyze the market performance of 129,448 representative SKUs on Alibaba to quantify the economic value of a high-quality delivery service to sales, product variety, and logistics rating. Our identification design allows us to estimate both the losses from its removal and the gains from its resumption. We find that the removal of the high-quality delivery option decreased sales by 16.42% and its resumption increased sales by 18.83%, but it did not impact the variety and the logistics rating of sold products. We also identify product characteristics that attenuate the value of high-quality logistics and find that the removal of SF Express is more obstructive for (i) star products than long-tail products because the same star products are likely to be supplied by competing retail platforms that customers can easily switch to, (ii) expensive products because customers need a reliable delivery service to protect their valuable items from damages or losses, and (iii) less-discounted products because customers are more willing to sacrifice the service quality over a price markdown.
Keywords: Delivery, Service quality, Sales, Product variety, Retail platform, Natural experiment
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