Disentangling the Customer-level, Cross-channel Effects of Large-Order-Advantaged Online Shipping Policies

A key challenge in e-commerce retail is identifying a shipping fee policy that incentivizes more online orders and sales. To achieve this, retailers occasionally alter their shipping policies. While information systems research has extensively examined e-commerce channel strategies and their interplay with offline channels, it has yet to explore the online and offline implications of changes in e-commerce shipping policy. Against this backdrop, we study a shipping policy change designed to incentivize higher-dollar orders, specifically, a large multichannel retailer’s shift from a tiered online shipping policy to a flat-rate policy. Using rich customer-level panel data and a regression discontinuity in time approach, we demonstrate that a flat-fee online shipping policy, counterintuitively, shifts sales away from the online channel and toward the offline channel—generating 23% more offline sales across 21,028 customers in five states. Evidence from additional analyses corroborates an account based on two mechanisms: an online order aggregation effect, wherein flat-fee shipping encourages shipping fee-sensitive shoppers to aggregate purchases into larger orders, and an offline store interpurchase effect, wherein order aggregation generates longer interpurchase periods, during which customers meet their needs for smaller purchases by visiting the offline store. Thus, a flat-rate shipping policy can serve as an unexpected lever for driving multichannel behavior. These findings contribute to the e-commerce channel interplay literature within information systems research and have important implications for legacy retailers seeking to leverage their brick-and-mortar investments to fend off the likes of Amazon.com.