Physical distribution service performance and Internet retailer margins: The drop‐shipping context

Abstract

A B S T R A C TIn this paper, we investigate the relationship between Internet retailer margins and retailer promises regarding product distribution service. We focus particularly on Internet retailing in a drop-ship context, because this model provides a purer separation of these activities and the related costs and constitutes a critical context for the empirical examination of the relationship between retailer margins and promises. Drawing upon retailer and consumer perspectives, we articulate and justify a set of propositions regarding the relationships among different Internet retailer margins and promised product distribution service performance. We examine a sample comprising over 2000 retail transactions with customers and find partial empirical support for the set of propositions. Specifically, the results show that product margins and the margins on shipping and handling are inversely proportional. We also find a direct relationship between promised product distribution service performance and shipping and handling margins even after key product characteristics known to influence the cost side of the margin equation are controlled for. These results confirm an intuitively logical view of the relationships among pricing and promised product distribution service performance. The study also offers insights for practitioners regarding the opportunity to enhance performance in this domain and demonstrates the benefit and power of employing objective measures drawn from the vast array of information captured via online transactions.ß

Cross-Border Electronic Commerce: Distance Effects and Express Delivery in European Union Markets

“…E-commerce demand can be influenced by partitioned shipping prices and free shipping [20,37], and [24] provide an empirical comparison of these two pricing strategies. The effects of distribution services and shipping fees on the profit of internet retailers are investigated empirically in [49] and by means of numerical studies in [34], and some cross-border e-commerce studies find no significant distance impacts on parcel delivery cost [21,36]. Third, e-commerce managers can reduce the time dimension of distance by offering reliable express delivery options to their customers.…”

“…Some retail programs like Amazon Prime and Google Express have recently introduced prime express delivery services and have even implemented their own transport networks. Thus, express delivery has gained acceptance as a means for providing substantial value for cross-border e-commerce [49], and European Courier, Express, and Parcel services provide opportunities to increase cross-border e-commerce in Europe [13]. Still, rational consumers regard express delivery charges as additional transaction costs [10], even if retailers include these costs as part of the product price [24].…”

“…Online retailers can try shipping-fee partitioning tactics to generate more customer demand without destroying their margins by subsidizing light, small, and premium-priced products, since consumers hesitate about paying shipping charges for these categories [24]. They can compete in online markets with full product and price information by improving their physical distribution service performance, in particular delivery speed [49]. The value of freight transport time saving, or equivalently, the willingness to pay for reduced in-transit freight transportation time, has been studied from the B2B viewpoint, showing that express delivery becomes more attractive for regions with higher congestion, for higher-valued goods, and for consumers with higher disposable incomes [42,62] .…”

“…E-commerce managers have various ways to influence the financial performance of their business. They can increase the repurchase rate by providing satisfactory levels of service quality to improve loyalty [11,49,51], and the order size by exploiting threshold effects [4] and by offering discounted or free shipping [24]. The quality of provided services is important to attract and retain e-customers [41,52].…”

Consumer-driven e-commerce

“…The mode of delivery can be in-sourced (using retailer's own vehicle fleet), outsourced to a third-party logistics provider (3PL) (Boyer and Hult, 2005), or crowd-sourced using independent contractors (Wang et al, 2016). When selecting a distribution channel, retailers need to trade-off between fulfilment capabilities, inventory levels , product availability and variety (Agatz et al, 2008), transportation cost (Rabinovich et al, 2008), and responsiveness (Chopra, 2003). The nearer the picking site is to the consumer segment, the more responsive is the channel.…”