Winning at Home Delivery

Providing Customers Choice with Profitability

ChainLink Research

2013

Winning at Home Delivery

Introduction—Home Delivery: The New Battlefront for Retail

Much of the buzz in retail right now is consumed with home delivery. Online giants like Amazon and eBay are entering into the territory—literally—of brick and mortar retailers, opening warehouses in choice markets. This brings them a step closer to providing the immediate gratification inherent in the in-store purchase. But traditional retailers are fighting back with new retail formats, new technology, and also, home-delivery service.

Home delivery is not new; same-day delivery services have been de rigueur for shoppers in the UK and Asia for many years. A decade ago, many etailers in the US tried home delivery. Start-ups abounded, but many failed. Many of them underestimated the cost and requirements for providing precise delivery. So what will be different this time?

A competitive response is required. But not doing it well can be a huge dissatisfier, jeopardizing potential lifetime relationships. In many sectors like service industries, precision-delivery schedules are a core part of their business offerings, and they make a profit at it, too. Thus, delivery is an opportunity for retailers to reorient their thinking from minimizing costs to maximizing revenue.

The decision to do home delivery is an executive decision, and needs to consider many factors of the business model not only to stay ahead of the competition, but to also remain profitable. These issues must be addressed before embarking on what can be either a huge calamity or a source of opportunity for the retailer.

ChainLink researched the global landscape to understand which of the current practices are myths and which are the winning strategies. We will share these insights with you throughout this paper.

In this paper we will explore:

• Achieving the Home Delivery Advantage—elements of the home-delivery business model
• Customer Choice—offering the customer choice while optimizing cost and performance
• What It Takes—best practices and technology to excel at home delivery
• Conclusion—the way forward

Achieving the Home Delivery Advantage

Whether you already provide home delivery and want to up your game or are considering providing home-delivery services, there are a few critical elements to consider.

Who Needs It?

Home delivery is not just an issue for online retailers. But as brick and mortar retailers consider effectively competing against etailers—or one another—becoming stellar at home delivery is essential. The challenge is to secure and retain retailer control while providing customer choice.

Home delivery is not just about scheduling a delivery—it is also about service. Many category retailers, de facto, have to provide services due to the nature of their products. Specialty retailers know that an extended service relationship under their brand creates loyalty and long-term relationships. But general merchandisers have often missed this opportunity and their sales have often suffered.

But before deciding to provide home delivery, there are many factors to consider.

The Home Delivery Model

To design and successfully execute home delivery services, there are important financial and customer-service metrics to be considered in order to arrive at profitable on-time service.

The Business Model

Whether you are a wholesale distributor, etailer, or brick and mortar retailer, your business model is more than your category or channel strategy. It requires thinking about the customer segments you serve; the channels, products, and services you provide; and the future you are contemplating.

Product Requirements
Various categories of products require what is called ‘attended delivery’—that is, the customer or some designate must be there to receive the goods.
• Service Requirements—assembly or installation requirements in categories such as electronics, appliances, home gyms, or medical devices. Customers generally expect to pay for this and often purchase a service contract; that means you will be potentially visiting their home many times.
• Restricted delivery—requiring COD and/or signature due to the nature of the product—prescription drugs, alcoholic beverages, or hazardous chemicals, for example. Large retailers like Walmart charge a flat fee for this service.
• Perishables—food is the most noted example. Short delivery windows are key here. Companies like Radish Boya in Japan deliver fresh items to customers daily.

Customer

Different demographics and lifestyle considerations often drive people’s decisions to seek home delivery. Seniors may have different needs compared to young professionals.

Going It Alone or Using Third Parties

Having your own fleet may have significant advantages, allowing for exceptional home delivery including installations and services. However, using third parties who specialize in home delivery is frequently the choice, especially with ecommerce.

Customer Choice

What is the Right Time?

Everyone focuses on timing, especially now with the ‘fast cycle,’ same-day delivery buzz. In reality, the ‘what’ and ‘how’ are as important—if not more so—than the time. Smart retailers often incentivize the customer to make choices based on optimizing delivery factors.

To Charge or Not to Charge—That Is a Fair Question

The stampede to free shipping is another factor causing concern for many retailers. Not all shipping needs to be free—and even the biggest etailers known for free shipping have certain restrictions.

Understanding Cost and Maximizing Revenue

Having a strong analytical approach to program design and ongoing monitoring to refine choices is essential. Key cost factors include:

• Logistical infrastructure costs
• Transportation costs and expenses
• Service costs
• Personnel

Optimizing the Process

In order to improve service and control costs, optimizing the delivery process needs to be mastered.

Optimizing for High Drop Density

Ensuring high drop density is a prime determinant of profitability. Low drop densities greatly increase costs associated with delivery. Best methods can schedule orders to increase drop density while the customer is still in the ordering process.

So, What’s It Take? Best Practices and Technology

Alongside experience, several best practices have emerged:

Conclusion—The Way Home

Retailers can no longer compete solely on product and price. Home services are a critical parameter in the competitive equation. The decision to implement home delivery is significant and impacts customer perception. Leveraging technology solution providers is key to achieving success in home delivery.