Analysis

Opinion: Will keeping the customer happy mean opening up systems?

It’s something that many retailers and carriers have previously often resisted but will keeping the customer happy mean the need to increasingly open up systems, asks By Duncan Licence, VP for global solutions, MetaPack.

When it comes to eCommerce, the ability to deliver customer choice and convenience is a key differentiator. Whether it’s where and when they choose to have their product delivered, how it can be returned, access to in-flight changes, or tracking the delivery process, the consumer wants the most convenient arrangement to suit their lifestyle.

Retailers, brands and carriers go to great lengths to meet customer demand, which comes at a cost. It is possible that those levels of convenience could be raised even further, without the negative impact on margins, if all parties embraced open, integrated technology platforms.

Opening up networks

Easier said than done perhaps; but retailers such as ASDA and carrier services including CollectPlus and Doddle are already leading the way with increasingly extensive and open networks. These are proving very popular with consumers who welcome the freedom to pick up and drop off their online orders from a handy location on the way to or from work.

For the smaller retailer, there is a huge benefit in being able to offer a broad range of delivery and returns options and locations by linking with a retailer or carrier service with a large network.

But the other key advantage is that this helps them to manage the cost of delivery, which accounts for between 10% and 12% of the cost of a product. With the pressure on to offer low-cost or free delivery, and match benchmarks set by online market places where deliveries are funded as a cost of sale, smaller retailers are under increasing pressure to make margin and keep customers happy.

So, some are choosing to partner with a service such as Doddle, which ensures their customers can pick up and drop off goods at a convenient location and provides them with a manageable and cost-effective delivery option to offer.

Retailers must look to collaboration

Although collaborative services are popping up, the vast majority of retailers are still reluctant to open their networks or systems. They are concerned that the investments they have made in back office functionality and technology to support unique delivery options – the very thing that differentiates them from other players in the market –  will be eroded, and they will lose their competitive advantage.

Increased collaboration will, to a certain extent, have a levelling impact across the industry and there is a valid concern that delivery will become commoditised as a result.

For many retail and carrier businesses the biggest challenge is in convincing board members and shareholders to consider investing in opening up their networks to organisations that they may have, up until now, considered as competitors. It is a risky strategy to expect them to support, made doubly difficult when margins are already so slim.

Finding the right balance

There is still a desire to effectively compete by meeting customer demands for choice, convenience and price. In a recent MetaPack survey, carried out amongst almost 4,000 consumers, 45% said they had abandoned a basket on a retailer or brand/manufacturer’s eCommerce website because of unsatisfactory or unavailable delivery options. So, is it possible to find a balance that allows the industry to keep pace with the consumer but at the same time maintain competitive edge?

Progress will depend on who and what is offered. ASDA toyou, for example, is not regarded as competitive to the pure-play retailers such as ASOS, Missguided and PrettyLittleThing or the smaller bricks and mortar companies including M&Co and Fat Face that have launched on its network.  On the contrary, their click and collect offer has been vastly extended as a result of the partnership.

When Sainsbury’s acquired Home Retail Group, the owner of Argos and Habitat, it was clear about its intention to allow its customers greater choice, convenience, flexibility and fast delivery whether they were food shopping or buying a new electrical item for their home.

Like ASDA, they have used their store network to increase their presence in the omnichannel world, and this is absolutely necessary because as the consumer continues to move online, the cost of maintaining a store estate is increasingly onerous. By providing services in the delivery space, not only are these large multi-location chains benefiting smaller retailers, they are also aligning their overall offering to a broader audience which allows them to stay relevant in the ever-changing retail market.

A particular advantage for carriers

When it comes to carriers, however, the situation is slightly different. For PUDO providers like CollectPlus or Doddle the benefit of opening their systems is that it encourages greater volume. Like the traditional carriers before them, they are working within very narrow margins, so the more volume they have the greater the network effect of their services and improvements to their unit economics through scale.

The big barrier for carriers is that their legacy systems are constantly in need of refreshing and this requires heavy investment which not many are able to make in the current market. Forward thinking retailers will look to expand their own delivery or partner with individual delivery businesses in the way that John Lewis has done with Clipper.

The value of a carrier agnostic platform

The alternative to partnerships or two-way collaborations is the use of a carrier agnostic platform. Migrating onto an independent delivery platform requires a high degree of trust, but in return the cost of connecting multiple retailers with multiple carriers and maintaining this network in the long term becomes manageable. The use of an agnostic carrier management platform means that with investment in the network being made on a constant basis, the participants are future-proofed to embrace consumer demands as and when they evolve.

Both retailers and carriers want to serve customers well and to control their costs, and they have a choice: they can work with an independent platform, they can continue to work independently, or they can collaborate and open their networks to partners. The nature of their operations and the willingness of their board to look into the future will determine the choices made. This is not just a question of technology, but also of making difficult commercial decisions that will have a lasting impact on market share.

Duncan Licence is VP for global solutions at MetaPack.

Image credits: MetaPack and Fotolia.

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