Disclosing Delivery Performance Information when Consumers are Sensitive to Promised Delivery Time, Delivery-Time Conformance, and Prices

The authors investigate conditions under which it is optimal for a service firm to disclose error-free delivery-time performance information or to allow consumers to rely on error-prone proxies that are typically available to them. Proxies are allowed to exhibit different degrees and forms of error and consumers are considered to be sensitive to promised delivery times, delivery-time conformance (defined as the rate of on-time delivery), and prices. Firms can choose to disclose true, error-free delivery-time conformance rates (full disclosure scenario). Otherwise, firms can publish error-prone, consumer-generated ratings of delivery-time conformance or no information at all (limited disclosure scenario). Market conditions and firm attributes determine which strategy is most profitable. The analyses draw from utility theory, queuing theory, and choice modeling theory to model consumer and firm behavior with and without competition. Data from a major online retailer inform and support the model primitives. The authors characterize conditions under which full disclosure is more profitable than limited disclosure and find that full disclosure may improve or harm profits depending on the attributes of the firm. For highly-efficient firms, the optimal promised delivery time, prices, and profits decrease when true delivery-time conformance rates are disclosed. If the error of a proxy is separated into bias and dispersion, positive biases and dispersion may have opposite effects on profits. The results offer actionable guidelines for firms to decide whether to disclose true delivery-time conformance rates or to allow consumers to rely on error-prone proxies such as consumer-generated delivery-time ratings