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. Retailers can strategically adjust this delivery speed promise online without changing offline infrastructure, and it 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 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 across the US, we exogenously varied the disclosed delivery speed estimates online 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 and deteriorates customer retention. In addition, we study heterogeneous responses across new and existing customers. Our findings provide managerial insights that retailers could leverage to customize their delivery promises.

Keywords: delivery speed information, online retail