Relationship between Package Delivery Speed and Product Returns Revisited: Endogeneity, Nonlinearity, and Heterogeneity

Posted: 8 Aug 2022 Last revised: 22 Dec 2023

See all articles by Mengmeng Wang

Mengmeng Wang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Guangzhi Shang

Florida State University - College of Business

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Xiaojing Feng

Southwestern University of Finance and Economics

Cheng Fang

South China University of Technology - School of Business Administration

Date Written: July 28, 2022

Abstract

High product return rates have long been a problem for online retailers. As customers increasingly demand fast delivery when shopping online, an understanding of how logistics time affects their product return tendency becomes critical. Rao et al. (2014) revealed that there exists a negative linear relationship between package delivery reliability and product returns. Building on their seminal findings, our research examines this understudied effect in a more granular manner and separates the within and between effects, both theoretically and empirically, by leveraging a transaction-level dataset that is more up-to-date and larger in size. We find that customers’ tendency to return an order concavely increases with the actual delivery time, which can be explained by the customer’s subjective time perception that psychophysically differs from objective time, rather than by two alternative mechanisms. The results are robust when we use an instrumental variable to address the endogeneity issues in the fixed effects model. Our findings highlight the increasing benefits of shortening delivery time on order returns for online retailers.

Keywords: Product return, order delivery speed, subjective time perception, retail operations

Suggested Citation

Wang, Mengmeng and Shang, Guangzhi and Rong, Ying and Feng, Xiaojing and Fang, Cheng, Relationship between Package Delivery Speed and Product Returns Revisited: Endogeneity, Nonlinearity, and Heterogeneity (July 28, 2022). Available at SSRN: https://ssrn.com/abstract=4175658 or http://dx.doi.org/10.2139/ssrn.4175658

Mengmeng Wang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

1954 Huashan Road
Shanghai, Shanghai 200030
China

Guangzhi Shang (Contact Author)

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Xiaojing Feng

Southwestern University of Finance and Economics ( email )

Chengdu
China

Cheng Fang

South China University of Technology - School of Business Administration ( email )

381 Wushan Road
Guangzhou, Guangdong 510640
China

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