Getting the balance right

A RECENT report by consultancy BearingPoint highlighted deliveries and how important they can be to retailers’ potentially fragile share of the eCommerce pie.

Consumers are increasingly demanding, and it seems especially so in the UK. The report said UK shoppers (63%) are almost twice as likely as their German counterparts (38%) to either abandon their online shopping basket or switch retailer if delivery options are too slow or don’t meet their needs.

Things get worse for retailers with frequent shoppers, who are up to two and a half times more likely to switch or drop out than those customers who only shop online once a month.

The BearingPoint report, based on a survey of 3,000 customers in the UK, France, and Germany also found that delivery speed (up to 13%) is the least important factor when choosing a delivery option, with price (up to 70%) and location (up to 28%) the most important features. 

SAMEDAY

This contrasts with consumer research from delivery company ParcelHero, which says speed is a key factor.

Its figures say that while 33% of shoppers looked for sameday deliveries in 2020; in 2021 it rose to 56%. In addition, it found that 74% would wait longer if it meant the delivery method was more sustainable 2020, but that fell to 61% of purchasers in 2021.

ParcelHero head of consumer research, David Jinks, said: “The problem is that same-day deliveries are vastly more expensive to fulfil than next-day services. Although 64% of shoppers said they are willing to pay more for same-day deliveries, it’s unlikely this would cover the upfront cost of the huge changes in supply chains and distribution centres needed.”

David added that the WMS retailers [typically] deploy are ideal for deliveries ranging from two weeks to next day as WMS can group orders and deal with them in batches – for processing orders overnight. Sameday orders give just a one or two-hour window, so batch sizes have to be reduced, and picks can’t be optimised in the same way.

“To make sameday delivery economically viable, firms need high and consistent volumes of daily orders within a reasonable radius of their distribution hub,” said David.

“It’s one of the reasons why the delivery giant DHL last week finalised the takeover of courier network CitySprint, which specialises in sameday services. DHL says sameday delivery is one of the fastest-growing segments of the logistics market and the deal enables it to provide a range of new delivery options.”

LOYALTY

While speed is a key challenge for eCommerce logistics operators, arguably the key issue for retailers is consumer loyalty. When drilling down into the issue of consumer loyalty to retail websites, BearingPoint found an average of 87% of customers agree they tend to visit their favourite sites first when shopping online, rather than browsing around, with the UK at 91%.

Therefore, gaining loyalty through the right online delivery offering can help grow and maintain your customer base. On the flip side, getting it wrong can result in lost customers and sales, said BearingPoint.

Drawing on the survey data, BearingPoint examined price sensitivity across different scenarios. Broadly it sees – as expected – uptake by customers decrease with increasing delivery price. However, this pattern is not linear, and there are step-like changes in behaviour, with distinct inflection points in customer price sensitivity. This means there are certain price “thresholds”, where a small increase in delivery price heavily impacts customer uptake. Between these thresholds price has less of an impact.

Price is, therefore, a powerful lever for adjusting the customer uptake of your delivery channels. The data indicates, for example, that charging a delivery fee of €2.90 for “standard” home delivery, for low-value and small items in a planned purchase, will cause 88% of customers to choose that option (when compared to a range of other options). By charging slightly more, you are unlikely to change the uptake significantly, but you can improve profit margins. However, pushing the price too high, say to €6.90, will result in

a drop in customer uptake to 36%, losing sales and customer loyalty.

CLICK AND COLLECT

Home delivery is, in most cases, the preferred delivery location, according to BearingPoint’s report. But the report also found that in the UK and Germany, Click and Collect customers say they prefer collecting their items from the retailer’s branded store (34% of customers in the UK and 25% in Germany), driven by security and the ease of returning items, where needed. However, in France, the supermarket is the top choice (27% of customers would choose this as their favourite pick-up location), and only 21% prefer to collect from the retailer’s store. Customers say this is driven primarily by convenience. In all three markets tested, younger shoppers (18-34 years old) are more likely than other age groups to want to collect from the store from which they ordered than from other locations.

TAKEAWAYS

The BearingPoint report outlines the following three key steps that retailers must take online to make sure their delivery propositions retain customers and preserve margin:

• Use data to go beyond perceptions to understand specific, local customer behaviour.
• Optimise delivery offers by balancing customers’ desires with fulfilment costs.
• Fine-tune delivery options for different business scenarios and predict uptake to optimise operational efficiency.

BearingPoint partner Stuart Higgins, says: “The right delivery strategy is essential to the success of your online retail business in what is an increasingly competitive market. It promotes customer loyalty, helping you to grow and maintain your customer base, and enables you to control margin and balance service levels. However, as our research demonstrates, getting your delivery strategy wrong could result in lost customers and sales, margin erosion and falling short of customer expectations.

“Our analytics show that, across a series of products and shopping missions, you can reduce costs, manage operational capacity and increase customer retention by offering customers a suite of delivery options that covers all their different needs and buying behaviours. This will combine an appropriate mix of fast options at suitable prices and slower options priced more cheaply. By doing this, you can meet the needs of all customers, without overserving them and therefore losing margin. By wasting less product and making better use of resources, retailers can also create a more sustainable fulfilment chain.”