Disentangling the Customer-level, Cross-channel Effects of Large-Order-Advantaged Online Shipping Policies

Abstract

A key challenge in e-commerce retail is identifying a shipping fee policy that incentivizes more online orders and sales. To achieve this, retailers occasionally alter their shipping policies. While information systems research has extensively examined e-commerce channel strategies and their interplay with offline channels, it has yet to explore the online and offline implications of changes in e-commerce shipping policy. Against this backdrop, we study a shipping policy change designed to incentivize higher-dollar orders, specifically, a large multichannel retailer’s shift from a tiered online shipping policy to a flat-rate policy. Integrating the multichannel evaluation framework with a behavioral shock perspective, we theorize multiple potential outcomes of the retailer’s move to a flat-rate shipping policy. Using rich customer-level panel data and a regression discontinuity in time approach, we demonstrate that a flat-fee online shipping policy, counterintuitively, shifts sales away from the online channel and towards the offline channel—generating ~$526,000/month in new offline sales from previously online-only customers in five states. Evidence from additional analyses corroborates an order aggregation account, wherein flat-fee shipping encourages aggregation of planned purchases into larger orders to take advantage of the flat-rate shipping fee; yet this generates longer interpurchase periods, during which customers meet their needs for smaller purchases by visiting the offline store. Thus, a flat-rate shipping policy can serve as an unexpected lever for driving multichannel behavior. These findings contribute to the e-commerce channel interplay literature within information systems research and have important implications for legacy retailers seeking to leverage their brick-and-mortar investments to fend off the likes of Amazon.com.

Keywords: E-commerce, Multichannel Retailing, Shipping Policy, Brick-and-Mortar, Product Returns, Quasi-Experimental Experiment