Sooner or Later? Promising Delivery Speed in Online Retail

Abstract

Online retailers have to provide customers with an estimate of how fast an order can be delivered before they purchase it. This delivery speed promise is what online retailers can strategically adjust at almost no cost but what may fundamentally impact business outcomes. It influences consumers' purchasing decisions and post-purchase experiences, often in the opposite direction. On one hand, an aggressive (i.e., faster) delivery estimate could assure more customers of meeting their deadlines and thus may increase their purchases ex-ante. On the other hand, an aggressive estimate tends to overpromise customers, risking a longer than expected wait time, which can lower customer satisfaction and increase product returns ex-post. In this research, we study the causal effect of retailers' delivery speed promise on customer behaviors and business performance. Collaborating with Collage.com, an online retailer that sells customized photo products, we co-designed its new shipping policy. We exogenously varied the disclosed delivery speed estimates across cities while keeping the physical delivery speed unchanged. Using a difference-in-differences identification and a dataset with 212,340 transactions in 7,090 cities, we find that a one-day faster promise increases sales by 0.73%, profits by 2.0%, and value per order by 3.5%; a one-day slower promise reduces sales by 0.51%, profits by 2.7%, and value per order by 3.1%. However, the aggressive disclosure increases product returns. Retailers could leverage our insights to customize delivery promises for certain products or customers.

Keywords: delivery speed information, online retail