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The Value of an Online Retailer Building Their Own Delivery Service

The Value of an Online Retailer Building Their Own Delivery Service

Banggang Wu, Yubo Chen and Prasad A. Naik

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An increasing number of online retailers (e.g. Amazon) are investing billions of dollars in building their own delivery services (ODS) and delivering products to customers’ homes through their own logistics network. ODS not only improves delivery quality but also builds customer trust, which together increases customers’ monthly spending, purchase frequency, and the number of items ordered. ODS has greater value for markets with lower trust levels, infrequent customers, high-risk product categories, and consumers who prefer the focal retailer.

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Related Marketing Courses: ​
Digital Marketing, Retail Marketing

Full Citation: ​
Wu, Banggang, Yubo Chen, and Prasad A. Naik, “How Own Delivery Services Influence Customer Behavior and Sales in Online Retail? Building Trust and Improving Delivery Quality in Digital Economy,” Journal of Marketing, forthcoming.

Article Abstract
Online retailers worldwide invest beyond their core business of retailing to offer own delivery services (ODS) to deliver products to customers’ homes through their own logistics network. How does this shift to ODS affect customers’ behaviors and sales performance? When and why do retailers venture beyond their core competence to offer ODS? To explore these questions, the authors analyze 250,055 customer transactions over 10 years across 416 cities and 49 product categories from JD, a major online retailer in China. Using difference-in-differences model, causal mediation analysis, and synthetic control method, they find that ODS increases customers’ monthly spending by 7.8% and grows the city-level sales by 11.9%. This study is the first one to quantify the sales impact of ODS and shed light on when and why it works. The findings reveal that ODS has greater value for markets with lower trust levels, infrequent customers, high-risk product categories, and consumers who prefer the focal retailer (versus that of third-party sellers). Causal mediation analysis further reveals that ODS not only improves delivery quality, but also builds customer trust, which together increase customers’ monthly spending, purchase frequency, and the number of items ordered.

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Banggang Wu is Professor of Marketing, Sichuan University, China.  

Yubo Chen is Coca-Cola Chair Professor of Marketing and Director of Center for Internet Development and Governance, Tsinghua University, China.

Prasad A. Naik is Professor of Marketing, University of California Davis, USA.