Exploring the Interactive Relationship between Retailers’ Free Shipping Decisions and Manufacturers’ Product Sales in Digital Retailing

Abstract

In the realm of multichannel digital retailing, free shipping has gained popularity as a promotion strategy. However, few studies have investigated how retailers make decisions regarding free shipping. Furthermore, concerns have arisen regarding the sustainability of free shipping promotions for manufacturers. This research employs a simultaneous equation model with fixed effects to explore the determinants of market structure concerning the proportion of retailers offering free shipping and its impact on manufacturers’ product sales. As per our current knowledge, this research is pioneering in establishing a causal relationship between the percentage of free-shipping retailers and manufacturers’ product sales. Specifically, an increase in the percentage of retailers employing free shipping leads to higher product sales, while lower product sales drive increased retailers to adopt free shipping. Our findings indicate that competition among products has a significant positive effect on the percentage of retailers offering free shipping in the interactive relationship. Furthermore, increased competition among retailers results in more retailers adopting free shipping strategies. These results affirm the efficacy of free shipping as a promotional approach to increase manufacturers’ product sales, particularly in highly competitive markets.