The Value of an Online Retailer Building Their Own Delivery Service

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.

1. The Value of Own Delivery Service in Online Retailing Wu, Chen, and Naik

2. JD launched ODS Online Retailers are launching Own Delivery Service (ODS) Dataset from JD.com, the largest online B2C direct sales company in China Founded in 2004, operates similar to Amazon in US > 1500 delivery stations in 495 cities > 290,000 delivery staff Launched ODS in selected cities since April, 2010 Selected cities: Beijing, Shanghai, Guangzhou, Suzhou, Wuxi, Jiaxing , Shaoxing, Chengdu, Hangzhou, Nantong, etc. Big Basket JD Ocado Amazon

3. A quasi-experimental design Treatment: Launch of ODS (2010.4) Treatment group: (customers in) ODS City Control group: (customers in) none ODS Cities Chengdu 2 nd tier city in China (has many similar cities); April, 2010 (First beginning of ODS) Individual Level Analysis Propensity Score Matching + Diff-in-Diff Heckman Correction Aggregate Level Analysis Synthetic Control Method

4. Does ODS Pay Off? Managerial Questions: Does ODS Pay Off? Empirical Findings: ODS improves delivery quality and builds customer trust, and then increases customers’ purchases. Managerial Implications: ODS is a profitable strategy in the long run. It increases customer purchases. Business Practice: JD, Ocado, BigBasket , Amazon, and Walmart are investing in ODS to address the last-mile problem.

5. When Should Online Retailers Offer ODS? Managerial Questions: When Should Online Retailers Offer ODS? Empirical Findings: Depends on markets, customers, products, and sellers ODS works better in/for/among Cities or markets with lower trust levels. Customers with less purchasing experience. High-risk product categories JD’s products than third-party ones.

6. When Should Online Retailers Offer ODS: Market Conditions ODS works better in cities or markets with lower trust levels. Managerial Implications Online retailers in markets with lower trust could deploy a self-ownership model to address information asymmetry between sellers and buyers. Business Practice Online retailers in markets with low trust start to offer ODS. In Chinese markets, in addition to JD, leading short video platforms Douyin and Kuaishou entered the online retailing business and built their own logistics infrastructure and delivery services.

7. When Should Online Retailers Offer ODS: Customers ODS works better for customers with less purchasing experience. Managerial Implications Online retailers in markets can start from the regions with a large number of potential new customers. Business Practice Alibaba recently opened its Latin American headquarter for its logistics service, Cainiao , and planned to provide ODS in 10 cities in Brazil over the next 3 years as part of its effort to expand into the Latin American market.

8. When Should Online Retailers Offer ODS: Products ODS has a greater impact on high-risk product categories. Managerial Implications The self-ownership model is more suitable for high-risk products, such as perishable goods Business Practice Ocado adopted the ODS model in the UK. Walmart acquired Parcel and started using its own delivery network to deliver fresh, frozen, and perishable food. Amazon uses ODS for fresh grocery and food delivery.

9. When Should Online Retailers Offer ODS: Sellers ODS generates more sales for JD’s products than third-party ones. Managerial Implications Third-party sellers can increase their sales by adopting JD’s ODS. Business Practice Amazon sellers in the U.S. adopted the FBA program to fulfill their orders. JD started a JD’s Fulfillment for third-party sellers.

10. Conclusion Effect of own delivery service Leading city sales increase by 11.9% percent Customers generated more reviews that mentioned trustworthy The sales-boosting effect is greater for Markets with less trust Light-buyers Categories with higher uncertainty Own sellers