Retailer–supplier coordination of pricing and delivery ratings availability decisions in online marketplaces

Businesses selling in online marketplaces often enhance their offerings with short delivery times, but short delivery times typically result in low delivery-time conformance—the probability of on-time delivery, often published in the form of delivery-time ratings. As a result, short delivery times may simultaneously enhance and undermine the perceived value of online offerings. Marketplace operators can moderate this trade-off between delivery time and delivery-time conformance by making delivery-time ratings available or not. We (i) characterize the conditions for the emergence of the trade-off, (ii) identify the mechanisms that may allow managers to preempt the trade-off, and (iii) outline the conditions under which it is profitable for online retailers to solicit and publish delivery-time ratings. We model and compare alternative scenarios for the supply chain of a retailer and a supplier that offer a product in an online marketplace and determine prices and promised delivery times. We develop analytic models and support them with data provided by Cainiao’s logistic network. Differences of outcomes across scenarios reveal that the aforementioned trade-off can be preempted by simultaneously making delivery-time ratings available and coordinating the prices and promised delivery times. Disclosure of ratings can reduce delivery times but is profitable only if the disclosure increases system-wide value. Confirming this finding, analyses of Cainiao’s data indicate that the availability of delivery-time ratings can reduce the average promised delivery time by 3.9 h (or 7.4%). Several extensions show that our results hold for different contexts, including both drop-shipping and retailer-managed fulfillment models. In conclusion, our results suggest when and how supply chains in online marketplaces can use pricing to make the offering of shorter delivery times a dominant strategy.