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
• 2nd 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