Better Together! The Consumer Implications of Delivery Consolidation
When online customers order multiple items in one purchase, products may ship from multiple locations and, unless their delivery is consolidated along the way, arrive one after the other. Receiving the products sequentially, instead of altogether at once, could constrain the way customers evaluate their purchases, possibly changing their decision to return some. In this paper, we study the behavioural implications of delivery consolidation by looking at order-level outcomes such as the value net of returns, and the contribution margins.
We secured data covering two years' activity from an online marketplace that connects more than one thousand vendors with over eight hundred thousand customers around the world. Approximately half of all products bought during this time were ordered along with others, and were also delivered from different locations. To causally identify our results, we exploit the fact that the marketplace supply chain consolidates deliveries unintentionally and quasi-randomly, and use a matching estimator that compares the performance of order pairs with similar shopping baskets, logistics complexity, geography and timing--but different last-mile execution: consolidated versus split delivery. Our counterfactual is such that, to consolidate the delivery of an otherwise split order, the supply chain has to group all the products at the last-mile transportation hub. As a result, and by definition, forcing the consolidation of an order will increase the delivery time of early products.
We find that the marketplace benefits significantly when the supply chain consolidates order delivery. Our counterfactual estimates show that relative to average performance, consolidating the delivery of an order whose spread would otherwise be two, three or four or more days (i) raises the net value by 1.8%, 2.8%, and 7.6%, and (ii) lifts the contribution margin by 3.6%, 6.4%, and 20.3%, due to lower return rates.
We also find that delivery consolidation increases customer satisfaction, indicating that sequential deliveries--however faster--are less convenient. In particular, we show that customers who receive their purchases in sequence return the later--arriving products to a disproportionate extent. Additionally, we show that consolidation is especially beneficial when (some) products arrive late. If delivery consolidation was not possible, we show that the marketplace would at least benefit from expediting the most expensive products of an order.
Meeting ID: 964 8178 5889