Saman Modiri, Scott Fay, Not So Fast! How Delivery Time Impacts a Multi-Channel Retailer’s Profit [Draft]

Employing a stylized analytical model, we study how the delivery time for online orders affects the profitability of a multi-channel retailer that operates both an online channel and physical stores. In this paper, we ask whether faster delivery always increases a retailer's profit. Interestingly, we find that it can be profitable for a retailer to delay delivery even if faster delivery were costless and logistically feasible. In particular, a “Delayed Delivery” strategy is optimal when (a) consumers’ travel costs to the physical store are small, (b) consumers differ substantially in their valuations for the product, and (c) high-value consumers experience greater disutility from shopping online than do low-value consumers. Furthermore, we find that delaying delivery can induce a retailer to serve more consumers, introduce an online channel (when there otherwise would be only physical stores), and/or fully segment the market. Counterintuitively, we show that Delayed Delivery can create a win-win scenario in which both the firm and consumers benefit from online orders being delivered less promptly. Lastly, delaying delivery can be equally profitable to offering a menu of shipping options in which a premium is charged for faster delivery.