I Heart Logistics—Just Don’t Ask Me to Pay For It: Online Shopper Behavior in Response to a Delivery Carrier Upgrade and Subsequent Shipping Charge Increase

• Author: Brent D. Williams,Travis Tokar,Brian S. Fugate
• DOI: http://doi.org/10.1111/jbl.12239
• Published date: 01 September 2020
• Date: 01 September 2020

I Heart Logistics—Just Don’t Ask Me to Pay For It: Online

Shopper Behavior in Response to a Delivery Carrier Upgrade and

Subsequent Shipping Charge Increase

Travis Tokar

1

, Brent D. Williams

2

, and Brian S. Fugate

2

1

Texas Christian University

2

University of Arkansas

The provision of outstanding delivery service is increasingly critical for retailers engaged in e-commerce. As a result, many are interested in

switching from their existing carrier to one that is more highly capable in order to better serve their customers. In making this switch, the

retailer faces a dilemma: Better carriers cost more, so they will either have to accept a reduction in profit or increase the shipping charge to their

customers. While research shows that shoppers recognize certain carriers as superior—and both theory and empirical evidence suggest that peo-

ple are willing to accept certain cost-justified increases to what they are charged in a transaction—studies also show that online shoppers loathe

shipping charges. Thus, what is an e-retailer to do? Through a series of vignette experiments, we examine the question of how online shoppers

respond to a shipping charge increase when the retailer switches to a more highly perceived delivery carrier. Our findings show that shoppers

are not particularly accepting of the switch, and while they are not likely to complain, resulting purchase intentions are notably low. Alternative

strategies for implementing the carrier switch are also explored.

Keywords: e-commerce; last mile; online retail; shipping charges; vignette experiment

INTRODUCTION

Online sales are an increasingly significant source of revenue for

retailers. According to estimates from the U.S. Department of

Commerce, e-commerce accounted for more than $453 billion in

U.S. retail sales in 2017 (U.S. Census Bureau, 2017). In addi-

tion, e-commerce sales, as a percent of total retail sales, have

risen steadily from about 3.5% in 2007 to 9.1% in 2017 (U.S.

Bureau of the Census, 2018). Merchandise categories for which

this percentage share is notably large include furniture, as well

as electronics and appliances, at around 10% each, and clothing

and accessories at nearly 20% (Nicholson, 2017). Online sales

are sufficiently strong that even brick-and-mortar retail giants

such as Walmart and Kroger are investing millions of dollars to

develop and enhance their e-commerce capabilities (Giammona

and Chambers, 2018; Thomas, 2018). As a result, researchers in

the fields of logistics and supply chain management have begun

to study the operational challenges faced by retailers in multi- or

omnichannel environments (Bell et al., 2014; Peinkofer et al.,

2015; Ta et al., 2015; H€

ubner et al., 2016a,b; Castillo et al.,

2018; Wollenburg et al., 2018a,b).

Significant differences between e-commerce and traditional

brick-and-mortar sales include the spatial separation that requires

the item to be delivered to consumers (Lewis, Singh, and Fay,

2006). This creates an important dependence for e-commerce

retailers on the performance of their chosen delivery carrier.

Research has shown that delivery service performance has a sig-

nificant impact on customer satisfaction and retention (Hult,

Boyer, and Ketchen, 2007; Rao et al., 2011a) and is critical to

the overall success of an online retailer (Lee and Whang, 2001;

Rabinovich and Bailey, 2004). This delivery service comes at a

cost, however, and, typically, the better the service, the higher

the cost (Rabinovich and Bailey, 2004). Further, the cost must

be absorbed by the retailer or passed on to the shopper in the

form of a shipping fee. While many large online retailers offer

discounted or “free”shipping, the profitability of doing so

remains questionable (Lewis et al., 2006; Gumus et al., 2013;

Thomas 2019). Thus, many firms still choose to charge shoppers

for shipping. In addition, while giants such as Amazon and Wal-

mart offer “free”shipping on certain items—and soon even on

one-day deliveries (Thomas 2019), online shoppers can still

expect to pay shipping on many others. In fact, vendors selling

through Amazon Marketplace commonly charge for shipping, as

do vendors on the popular shopping websites eBay and Etsy.

Further, shipping charges are common when purchasing from

other mainstream retailers of cookware, furniture, art, electronics,

and appliances. As a result, understanding how consumers

respond to changes in such charges is an important area of logis-

tics research.

Overall, the current body of industry and consumer studies

speaks with one voice concerning shipping fees in general: Con-

sumers do not like them. Surveys of U.S. online shoppers have

found that shipping charges are second only to product price in

terms of factors when searching for and selecting products online

(81% and 79%, respectively; UPS, 2017), and factors they con-

sider when comparison shopping (26% and 23%, respectively;

comScore, 2012). Findings also show that 58% of abandoned

online shopping carts were due to the fact that shipping costs

made the total purchase price more than was expected (UPS,

2014). A separate survey found that shipping fees were the most

frequently cited driver of shopping cart abandonment (Forrester

Consulting, 2011). A survey of online shoppers in the United

Kingdom found similar results. It reports that 77% of online

shoppers abandoned a purchase after proceeding to the checkout

Corresponding author:

Travis Tokar, Information Systems and Supply Chain Management,

Texas Christian University, TCU Box 298530, Fort Worth, TX

76129, USA; E-mail: travis.tokar@tcu.edu

Journal of Business Logistics, 2020, 41(3): 182–205 doi: 10.1111/jbl.12239

© 2020 Council of Supply Chain Management Professionals

page. Of those shoppers, 53% cited high shipping prices as the

reason for not purchasing, while 26% said the only motive for

initially placing the item in their shopping cart was to check the

shipping cost (eDigitalResearch, 2013). Further, of those who

abandoned their online cart because of high shipping costs, 65%

reported searching for the item at other online retailers. This

highlights the fact that more than just a single lost sale is at stake

for the retailer; they risk permanently losing customers as the

individual builds experience with competitors.

Previous research found that consumers perceive service qual-

ity differences between common delivery carriers and prefer

those thought to perform better, and that purchase intentions are

higher when more preferred carriers are used (Esper et al.,

2003). Thus, the question at focus is whether online shoppers are

willing to pay more for shipping in order to be serviced by a

top-rated carrier. Existing scholarly research has yet to empiri-

cally examine this question. To this end, we apply distributive

fairness theory and dual entitlement theory to test and better

explain shopper behavior. Results of these tests are interesting in

that they suggest that while consumers clearly prefer higher

delivery service, they are not willing to pay for it.

These findings highlight the quandary faced by e-commerce

retailers: They know that shoppers do not like to pay shipping

fees, but customer satisfaction and retention are largely depen-

dent on the quality of the delivery service provided. Retailers

may initially elect to use a low-cost carrier, but service is often

inadequate and failure to provide quality delivery service leads

to costly negative behavior on the part of consumers (Rao, Grif-

fis, and Goldsby, 2011b). Thus, over time, a retailer may want to

switch to a better-performing carrier but doing so will almost

certainly increase the cost of shipping. In turn, unless the retailer

is willing and able to incur those cost increases themselves, ship-

ping fees to shoppers will have to be raised. How shoppers

respond has yet to be explored. Beyond addressing this initial

question (Study 1), we conduct two additional exploratory stud-

ies examining alternative strategies that retailers could apply

when facing this issue: providing consumers with the choice

between the original carrier and a new, more highly perceived

option at a higher cost (Study 2), and changing carriers while

providing a single price that combines both the product and ship-

ping costs (Study 3).

BACKGROUND AND HYPOTHESES

Motivation for this research is partially derived from multiple

conversations that the authors have had with owners of a

women’s apparel boutique, which acquires a significant portion

of its revenue from online sales. The owners became frustrated

by poor service from their low-cost delivery carrier and sought

to switch to a more reputable firm. Customers had frequently

complained of long delivery times, unmet delivery dates, and

damaged or missing packages. Further, shoppers were increas-

ingly calling for services such as product tracking, scheduled

delivery times, and higher amounts of package insurance cover-

age that were only available through more capable, yet more

expensive carriers. The owners worried that while service could

easily be improved by switching to a superior carrier, shoppers

might be displeased with the associated increase in shipping

charges and would forgo purchases or buy from competitors.

Delivery service and consumer behavior

Similar to the sentiment noted by the boutique owners, the logis-

tics and supply chain management literature is unequivocal con-

cerning the importance of delivery service in e-commerce

transactions. Among the first to examine service quality assess-

ment for online deliveries in the SCM literature is Rao et al.

(2011a), in which the authors conceptualize electronic logistics

service quality (e-LSQ) from the existing literature on physical

distribution service quality (PDSQ) and logistics service quality

(LSQ). Because PDSQ and LSQ were originally designed for

business-to-business (B2B) transactions, some modifications were

necessary to fit the business-to-consumer (B2C) nature of online

shopping. Primarily, LSQ consists of three elements: operational,

relational, and cost (Stank et al., 2003). Of these three, the opera-

tional and cost components remain relevant in an e-commerce

context; however, the relational component, with its focus on

contact between the logistics service provider and the buyer

(Stank et al., 1999), does not translate well to an online B2C

environment, given the infrequent contact between seller and

shopper and the fact that any contact that does occur typically

takes place after the transition, such as in the case of a product

return (Vickery et al., 2004; Rao et al., 2011a). As a result, e-

LSQ focuses solely on operational and cost issues.

Operational issues related to LSQ commonly include delivery

time (i.e., speed), delivery reliability (i.e., orders are delivered

when promised—or earlier), order completeness (i.e., no missing

items), and product condition upon arrival (i.e., orders are free

from damage incurred in transit) (Daugherty et al., 1998; Ment-

zer, Flint, and Kent, 1999; Stank et al., 2003; Davis-Sramek

et al., 2008), while issues related to cost include offering compet-

itive prices and services so that total logistics costs are mini-

mized (Stank et al., 2003). These elements have been shown to

have a wide variety of critical impacts on consumer behavior in

an online shopping context. For example, delivery service quality

has been shown to be a significant driver of customers’overall

purchase satisfaction (Rao et al., 2011a; Griffis et al., 2012), pos-

itive referrals (Griffis et al., 2012), and repeat shopping behavior

(Boyer and Hult, 2005, 2006; Rao et al., 2011a). Further, deliv-

ery service performance is shown to have an inverse relationship

with the probability of product returns (Rao et al., 2014). In con-

trast, poor delivery service performance led to decreases in both

future order frequency and dollar volume of purchases (Rao

et al., 2011b).

With regard to the impact of delivery service price (i.e., ship-

ping fees) on consumer behavior, research reveals a negative

impact on both order frequency and level of spending (Lewis

et al., 2006). In addition, Rao et al. (2011a) found that satisfac-

tion with shipping price has a positive impact on purchase satis-

faction and repeat buying behavior.

These findings show that managers of online retailers are wise

to carefully consider the quality and price of delivery service.

However, little empirical evidence exists concerning how shop-

pers will react when shipping fees are increased specifically for

the purpose of switching to a more capable delivery carrier. Rao

eShopper Response to Delivery Carrier Upgrade 183