Order Cancellation Behavior in Online Retailing : An Empirical Investigation

Problem Definition: Empirical research on retail operations has examined various online shopper behaviors that impact retailer performance, such as product search, substitution, cart abandonment, and returns. However, an important post-purchase shopping behavior has been largely overlooked by this research: order cancellations. Order cancellations increase retailers’ costs through inventory information distortions. Late order cancellations–after the order is processed and dispatched for delivery–can be even more costly to the retailer, as they necessitate the retrieval and return of products to the fulfillment center. Furthermore, cancelled orders incur lower costs for retailers compared to returned orders; therefore, restricting order cancellations can inadvertently lead to increased costs through a rise in returns. Thus, it is imperative to gain a comprehensive understanding of the primary factors driving order cancellation behavior in order to develop effective strategies for managing cancellation rates.Methodology/Results: Using a proprietary transactional data set and employing both econometric and quasi-experimental methods, we examine the product- and order-specific drivers of order cancellations and the causal impact of tightening order cancellation policy on cancellation and return rates. We find that orders placed using mobile devices are less likely to be cancelled than the orders placed through a computer. Furthermore, we observe that the degree of product customization is positively associated with the cancellation rate, while opting for a faster order delivery mode is linked to a lower cancellation rate. Moreover, we find that an order cancellation policy change that the retailer implemented in one of its geographical market areas—replacing the online self-service order cancellation process with a customer contact center-managed process, thus making order cancellations more onerous—resulted in a significant decrease in order cancellation rates, without necessarily increasing product return rates.Managerial Implications: Despite common wisdom that tends to conflate returns and cancellations, it is crucial to recognize and analyze order cancellations as distinct behavioral outcomes from returns. Understanding the unique factors that drive order cancellations enables the development of targeted interventions to effectively manage cancellation rates. Building upon our empirical findings, we put forth several recommendations for implementing such interventions