The Value of Own Delivery Services in Retailing

Abstract

Retailers face the last-mile problem of delivering ordered items to customers’ homes. To this end, they increasingly invest in building their own delivery services (ODS). How does this shift to ODS affect customers’ behaviors and sales performance? Why do retailers go beyond their core business of retailing to offer ODS? We propose that they do so to improve delivery quality and build trust among their customers. To verify, we analyze 250,055 customer transactions over 10 years across 416 cities and 49 product categories from JD.com, a major online retailer in China. Applying the difference-in-differences model and synthetic control method to this data, we estimate the causal effects and find that ODS increases customers’ monthly spending by 7.9% and grows the city-level sales by 11.9% on average. This study is the first one to quantify the sales impact of ODS. It further reveals that the value of ODS is larger in markets with infrequent customers, high risk product categories, and consumers’ preferences for a focal retailer (versus third-party sellers). Based on causal mediational analysis, ODS improves delivery quality and builds trust, which, in turn, increases customers’ monthly spending, purchase frequency, and the number of items ordered.

Keywords: own delivery service, trust, delivery quality, difference-in-differences, and synthetic control method

JEL Classification: M21,M31