Value of High-Quality Logistics: Evidence from a Clash Between SF Express and Alibaba

Abstract

Consumers regard product delivery as an important service component that influences their shopping decisions on online retail platforms. Delivering products to customers in a timely and reliable manner enhances customer experience and companies' profitability. In this research, we explore the extent to which customers value a high-quality delivery experience when shopping online. Our identification strategy exploits a natural experiment: a clash between SF Express and Alibaba, the largest private logistics service provider with the highest reputation in delivery quality in China and the largest online retail platform in China, respectively; the clash resulted in Alibaba unexpectedly removing SF Express as a shipping option from Alibaba's retail platform for 42 hours in June 2017. Using a difference-in-differences design, we analyze the market performance of 129,448 representative stock-keeping units (SKUs) on Alibaba to quantify the economic value of a high-quality delivery service to sales, product variety, and logistics rating. We find that the removal of the high-quality delivery option from Alibaba's retail platform reduced sales by 14.56% during the clash, increased the contribution of long-tail to total sales --- sales dispersion --- by 3%, but did not impact the variety and logistics rating of sold products. Further, 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 as compared to 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 quality, Retail platform, Sales dispersion, Product variety, Natural experiment