Physical distribution service performance and Internet retailer margins: The drop-shipping context

Elliot Rabinovich, Manus Rungtusanatham, Timothy M. Laseter

Research output: Contribution to journalArticlepeer-review

47 Scopus citations


In this paper, we investigate the relationship between Internet retailer margins and retailer promises regarding product distribution service. We focus particularly on Internet retailing in a drop-ship context, because this model provides a purer separation of these activities and the related costs and constitutes a critical context for the empirical examination of the relationship between retailer margins and promises. Drawing upon retailer and consumer perspectives, we articulate and justify a set of propositions regarding the relationships among different Internet retailer margins and promised product distribution service performance. We examine a sample comprising over 2000 retail transactions with customers and find partial empirical support for the set of propositions. Specifically, the results show that product margins and the margins on shipping and handling are inversely proportional. We also find a direct relationship between promised product distribution service performance and shipping and handling margins even after key product characteristics known to influence the cost side of the margin equation are controlled for. These results confirm an intuitively logical view of the relationships among pricing and promised product distribution service performance. The study also offers insights for practitioners regarding the opportunity to enhance performance in this domain and demonstrates the benefit and power of employing objective measures drawn from the vast array of information captured via online transactions.

Original languageEnglish (US)
Pages (from-to)767-780
Number of pages14
JournalJournal of Operations Management
Issue number6
StatePublished - Nov 2008


  • Drop-shipping
  • Internet retailing
  • Margins
  • Physical service distribution

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering


Dive into the research topics of 'Physical distribution service performance and Internet retailer margins: The drop-shipping context'. Together they form a unique fingerprint.

Cite this