Value of High-Quality Logistics: Evidence from a Clash Between SF Express and Alibaba

Consumers regard product delivery as an important service component that influences their shopping decisions on online retail platforms. Delivering products to customers in a timely and reliable manner enhances customer experience and companies' profitability. In this research, we explore the extent to which customers value a high-quality delivery experience when shopping online. Our identification strategy exploits a natural experiment: a clash between SF Express and Alibaba, the largest private logistics service provider with the highest reputation in delivery quality in China and the largest online retail platform in China, respectively. The clash resulted in Alibaba unexpectedly removing SF Express as a shipping option from Alibaba's retail platform for 42 hours in June 2017. Using a difference-in-differences design, we analyze the market performance of 129,448 representative stock-keeping units on Alibaba to quantify the economic value of a high-quality delivery service to sales, product variety, and logistics rating. We find that the removal of the high-quality delivery option from Alibaba's retail platform reduced sales by 14.56% during the clash, increased the contribution of long-tail to total sales-sales dispersion-by 3%, but did not impact the variety and logistics rating of sold products. Furthermore, we also identify product characteristics that attenuate the value of high-quality logistics and find that the removal of SF Express is more obstructive for (1) star products as compared with long-tail products because the same star products are likely to be supplied by competing retail platforms that customers can easily switch to, (2) expensive products because customers need a reliable delivery service to protect their valuable items from damage or loss, and ( 3) less-discounted products because customers are more willing to sacrifice the service quality over a price markdown.