By Chris Lillies, Head of Project Managment at Tryzens.
Consumers have become conditioned by online experience to look for promotions – or seek out alternative suppliers for the product they wish to purchase – where the retailer is offering free delivery. Whilst Tryzens Expert Research shows that the majority of UK consumers still opt for what is the cheapest method of delivery (usually free to their home or office at a time convenient to the retailer), customers are also looking for increasingly more convenient slots and prompt delivery times. Not only do retailers have to be ready to potentially deliver for free, but they additionally need to provide premium services for an incremental price – such as guaranteed one hour delivery slots or an increased range of stock eligible for same or next day delivery. Premium delivery services all come at a cost to the retailer – and can, if the retailer is not prepared, create a whole host of logistical issues!
Free delivery to home or work addresses is the most acceptable method for receiving online shopping, often rewarded to the customer as a result of a minimum spend or a limited promotion. In fact, research shows that almost 7 out of 10 UK consumers prefer free delivery to any other option (see our White Paper 3), and it acts as a good incentive to convert browsing into orders. However, this benefit to the consumer, whilst becoming commonplace in today’s online shopping experience, comes at a great outlay to the retailer. After the cost of the goods, the cost of shipping can be the second highest expense per order for an online retailer.
Consequently, it is often seen as a promotional offer, and in such circumstances will likely be paid for from the company’s marketing budget as opposed to cost of sales. Behavioural marketing is often employed to assess whether free shipping should be offered on orders over, say, £30. Does it guarantee more conversions at check out? Does a higher minimum order or no offer of free delivery equal more abandoned baskets? Does stock dispersal give rise to the need for multiple fulfilments of part orders? Or indeed, conversely, does a minimum threshold price that encourages additional items in the basket lead to a higher return rate? There is a fine balance between investing to gain loyal customers, and over-investment that affects margins. Analytics help to ascertain how many consumers a retailer would realistically win (and how many would repeat purchase) through free delivery, and if the promotion does indeed secure and extend the customer’s lifetime value. In other words, is the cost of the shipment promotion worth the impact on the retailer’s profitability?
An alternative way to help promote and fund free shipping is through a delivery pass providing next day delivery for the year. It is at a much reduced cost to the customer (at a cost to the retailer), but does help to buy their loyalty. Other options are to use a collection (or returns) point such as Doddle or HubBox, or if you have the store density, to implement a ‘Click&Collect’ service. These solutions are not yet as popular as the free delivery to home or office with Click&Collect at 33% and Delivery Points at 19% popularity). Critical to success of these schemes is the density of these collection points to ensure its convenient for consumers. Obviously these are simple to use and free to the consumer, and there are less overheads for your business. However, logistics such as stock storage and shop quantities need to be investigated. Another consideration is that the in-store customer spend through ‘Click&Collect’ can drive up incremental sales for multi-channel retailers, and variations on the theme such as ‘Reserve and Collect’, where the consumer still needs to pay at the till, can provide opportunities for the consumer to pick up other items on their journey to the checkout.
The importance of analytics
Multiple factors affect the costs and logistics of fulfillment. For example, the consumer’s shipping choice, the destination, the size and quantity of items, and stock availability/split orders, all have an impact on the retailer’s delivery cost, especially when compared to the shipment price charged by the carrier. Activity based costing models are increasingly required to work out the most effective cost per shipment or cost by weight or volume. Consequently, retailers need access to complex analytics and profitability models to determine how much to charge for delivery and/or how best to provide attractive options to their customers.
The TradeState analytics service by Tryzens is a great starting point as it provides real-time summaries of current trading as well as historical performance data in succinct summaries. We expect to see much richer sources of data being made available to TradeState and the use of middleware within e-commerce platforms to create new insights on a timely basis, so that you can prioritise the areas that you need to focus on to optimise trading performance.
With cheaper or more customer convenient delivery slots and return services being increasingly expected by consumers and innovated by courier firms, retailers will have to respond tothe shifting expectations in the market. They will also need to set out a clear and positive experience for consumers that enables the burden of cost to be managed effectively. As a minimum this will involve having access to data and systems to make timely decisions they execute on to achieve profitable results.
Flexible systems and the capability to respond to consumer demands are approaches championed by Tryzens. Solutions may include providing smart fulfilment choices that offer convenient and economic delivery services to ensure you remain competitive and profitable whilst delivering a great customer experience.
Having a single, real-time view of all your stock (whether it is in the DC, in transit, with a customer, or in store) also aids the fulfilment process and helps reduce impact on your operating margins by minimising split deliveries or optimising the fulfilment options for the customer. Middleware can integrate e-commerce channels with your other IT systems to exploit opportunities to reduce the financial pressure of deliveries and returns. It can also combine offline and online purchase data to give a complete customer picture, and tell you how they engage with your business including purchase history, interests and preferences.
Online Retailers need to think of ‘fulfilment’ as an extension of the consumer and product experience and therefore the impact of it needs to be clearly understood from the outset. You will need smart logistics and integrated business processes to be able to cover all the possibilities. Talk to us about providing you with the functionality to support all of these services, now and in the future. Keep pace with the fulfilment revolution.