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 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 post-purchase 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. Collaborating with Collage.com, an online retailer that sells customized photo products across the US, 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. Our findings provide managerial insights and a data-driven policy that retailers can leverage to optimize and customize their delivery promises.

Keywords: delivery speed information, online retail, innovative business strategy