According to the National Retail Federation (NRF) in its 2016 Retail Holiday Planning Playbook, technology will influence retail this Christmas in more ways than ever before. With heightened consumer demand starting to exert a heavy influence upon home delivery operations, retail success during the holiday season is increasingly dependent upon advanced home delivery solutions, says Chris Jones, executive VP marketing & services, Descartes.
Below he reveals five emerging practices that retailers are adopting in order to capitalise on the home delivery opportunity. They come from a recent benchmark study of retailers using advanced technologies in diverse industries worldwide, carried out by Descartes.
1) OMNICHANNEL: Harmonising delivery across channels
From electronics to wine, appliances, grocery, home furnishings and more, leading retailers are using advanced home delivery solutions across all sales channels – including in-store, telephone, and online/mobile sales – to achieve a consistent and positive delivery experience for consumers.
Home delivery complexity is one of the biggest challenges for many retailers, especially those having multiple options for delivery such as private and dedicated fleets, LTL, regional couriers and suppliers.
Having a wide array of large and small format goods can compound the complexities. Delivery consistency becomes a top issue as omnichannel customers receive unpredictable or unreliable delivery experiences, which are potentially then reflected in consumer metrics like Net Promoter Score.
Worse still, with the ‘last mile’ increasingly viewed as the ‘last word’ to the consumer, flawed home delivery experiences can take a toll on brand loyalty and future sales.
Visibility also gets worse in the absence of a single transportation platform to manage disparate delivery modes. In addition, as retailers expand drop ship operations, they lose control and sight of the order once it gets to the supplier.
However, advanced home delivery solutions can help harmonise delivery across all sales channels and will enable retailers to better exploit their Christmas cutoff dates. With a common visibility environment for all deliveries, technology can help thought-leading retailers make delivery choices based not only on new orders, but also on an understanding of orders already heading to the same area.
By logically grouping orders, regardless of size and available transportation mode, retailers can lower costs while reducing lead times. A single solution also provides the retailer and the customer with consistent visibility into delivery status – providing that much sought after peace of mind in the run up to Christmas Day.
2) TIME WINDOWS: Prioritising cuustomer choice
While the all-day delivery window is still commonplace, many retailers are experimenting with both more flexible and tighter time windows, empowered by the latest home delivery and scheduling technology.
Tighter time windows, such as 2 hour and 4 hour/half-day windows, provide customers with greater choice. Some retailers are even successfully offering 1 hour windows. For many, it’s the first “toe in the water” with something other than the all-day window, and they are being conservative in their ability to consistently make delivery promises.
Approaches are differing. Some retailers are implementing smaller time windows by offering customers one time window (e.g., 2:00pm to 4:00pm) and, after final planning is complete, publishing a 30 minute window within those goalposts to provide greater delivery certainty.
Others offer multiple time windows (e.g., 2 hour, 4 hour, all day) and let customers choose the one they want. This approach is often tied to a premium delivery pricing strategy, the convenience and added guarantee of which holds even greater appeal during the holiday season.
In either case, technology must support and enable different approaches over and above the all-day delivery window in order to achieve competitive differentiation during the year’s busiest period.
3) DELIVERY PERFORMANCE METRICS: Blending traditional and customer-focused metrics
Metrics are a critical part of any supply chain strategy; however, since home delivery touches consumers, traditional delivery metrics alone do not paint a complete picture of consumer needs. Basic delivery success for many retailers is defined by arriving within the promised window, although some include completion within the window. While this approach drives performance up, it reduces delivery capacity.
Leading retailers are starting to combine traditional delivery metrics (e.g., on-time, complete, miles per delivery, deliveries per route) with some form of consumer-focused metrics such as Net Promoter Score. It’s important to understand that consumers think differently and the very high on-time score retailers get for making an all-day window means less to a consumer than a slightly lower on-time score for a tighter time window. Why? No consumer has time to sit around all day waiting for purchases to show up – not least at Christmas time – so expectations are already low.
When analysing actual performance metrics in the study for all-day vs. 2 hour and 4 hour time windows, the study showed no substantial delivery reliability drop when these options were offered. All day windows topped out at 99% on time, and the best performance for 2 hour and 4 hour windows was 97% and 98% respectively. The expectation was for a much greater performance drop when the windows were dramatically shortened.
In addition, retailers who achieved the highest delivery performance levels for tighter time windows were those using a combination of smaller time windows with the all day option—providing greater flexibility to successfully deliver the tighter ones.
4) FREE vs. PAID & VALUE-ADDED SERVICES: Finding new revenue opportunities
Another hot topic in home delivery is the discussion of free versus paid delivery. The “versus” is part of the confusion because free and paid are not mutually exclusive. Many retailers charge something for home delivery.
For those that do offer free delivery, the all-day window is typically the only option. Other retailers offer free delivery as part of promotional activities and, in highly competitive situations, some have discretion to make free deliveries.
While still a relatively new concept in retail, leading companies are developing premium pricing models above the free or standard delivery fee for tighter time windows. In the study, a 4 hour time window was the lowest incremental charge point and prices typically varied between 8-10 of the local currency (e.g., $8 or £8). For a 2 hour time window, the charge was 2X the cost of a 4 hour window (e.g., 16-20).
There is definitely a class of consumers who value their time and who will pay for convenience. Given the volume of home deliveries for these retailers, it was not surprising that premium windows were bringing in £10Ms of incremental revenue – and home deliveries typically increase the closer it gets to Christmas.
Value-added services represent another tremendous opportunity to drive revenue growth and product sell-through. Installation, removal and return value-added services are proven to deliver £10Ms in additional revenue. Retailers are also starting to track product sell-through. With the right approach during the sales process, simplifying the cost and timing of installations helps consumers to make the decision to purchase products.
One last and very important point, premium and value-added services are not mutually exclusive either, and there are retailers executing them together to achieve significant revenue additions.
5) DYNAMIC vs. STATIC BOOKING: Fundamentally changing home delivery
A dynamic (versus static) booking strategy fundamentally changes the home delivery process, and this type of technology holds tremendous potential for more agile and revenue-generating home delivery operations.
With dynamic booking, the consumer is given inherently smarter delivery choices based upon delivery address, products and services being purchased, delivery network capacity, orders already in the booking system and the retailer’s preferences and business constraints.
With static booking, the consumer is given choices based upon a fixed number of deliveries in an area (e.g., post code) or by standard lead time (e.g., buy today, delivery tomorrow, all day window), neither of which takes into account existing deliveries or actual network capacity.
Because dynamic booking understands the delivery network capability and existing order book, it does not need to rely on averages or estimates to make delivery appointments or plan delivery services during the buying process.
Retailers with the tightest time windows and premium delivery services in the benchmark used dynamic booking. Dynamic booking also allows the retailer to manage the delivery options offered to each customer to minimise delivery costs, rather than taking orders and then determining how to meet commitments.
The dynamic booking concept is also important to what are currently two missed opportunities for retailers to improve customer loyalty and their top and bottom line. Right now, retailers generally treat each home delivery uniformly; that is, the best and worst customers get the same delivery options.
Clearly, this is inconsistent with many loyalty programs. With dynamic booking, historical spend, basket size and loyalty status can all be included as drivers of the options presented to customers. In this way, retailers can “lavish” high spending customers with more options and, equally, steer casual “c” customers to the lowest cost delivery options.
Delivery pricing is also typically static by service type. Again, this is a missed opportunity as there are examples like Uber and the airlines that dynamically price capacity. While this approach is not for all retailers, providing customers with choice based upon time of day or day of the week will drive incremental revenue and help load-level delivery capacity demand. Those that are cash rich and time poor represent the best opportunity for this type of service.
Consumer expectations are placing increasing demands on retailers’ supply chains, amplified further in the build up to Christmas. The need to become ever more innovative and flexible with the last mile of delivery is an increasingly important part of competitive differentiation, and ultimately retail success, while delivery cost, choice and convenience continues to influence buyer behaviour.
But it is only by implementing new advanced home delivery solutions that retailers will be able to adopt the five strategies identified to help turn home delivery from a cost-centre into a customer-facing competitive advantage. Once again, all eyes will be on those retailers that thrive or barely survive during the Christmas rush, and an integrated, technology-enabled supply chain strategy will be a key differentiator between the two.
12016 Home Delivery Benchmark Study: Perspectives from Leading Retailers on Strategies & Tactics for Home Delivery Success, Descartes Systems Group.
This article was written by Chris Jones, executive VP marketing & services, Descartes.
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