The keys to winning the e-commerce (rat) race
It’s early evening in Chicago circa 2020. A courier company van sits in traffic, toting Target packages ordered from a customer’s phone at noon for delivery by end of the day (called AM/PM delivery). Nearby, a car contains a single mom who drives part-time for Deliv; she’s stressed because she may not make the time window selected by a Macy’s customer earlier that day.
In the skies above, an Amazon drone buzzes by, holding a package ordered only an hour earlier, while miles away in the Loop, a train screeches along with a different order. It’s the final lap in the day’s ecommerce race, and retailers are trying any and every tactic. The key to winning is hardly a secret, but most have yet to discover it.
Most brick-and-mortar retailers offering same-day delivery are essentially following the Boston Consulting Group’s 2014 advice by experimenting in a few carefully chosen markets and using just one provider in each, usually a startup (e.g., Apple with Postmates).
However, the problem with the existing delivery-based startups is that they offer only one service level—either on-demand or scheduled delivery—which means that retailers who use their service cannot offer its customers an array of delivery options based on their budget and time constraints.
A related, but even more pressing question, is whether the startups’ business models are scalable and sustainable. Frankly, Postmates’ claim of $1 delivery sounds a bit like Kozmo.com, a notorious dotcom disaster case study that failed to execute on its promise of same-day delivery. By entrusting their same-day experiments to startups, retailers are putting their long-term competiveness and customer loyalty at great risk.
Business-to-business companies have known for decades that it’s important to offer multiple same-day service levels: one-hour on-demand, two-hour, am/pm, scheduled, or even two-person for difficult-to-handle items. These companies, such as the industrial supplier Grainger or the pharmaceutical distributor Omnicare, found out early on that offering a choice in service levels was a competitive advantage.
They also discovered that their customers rarely selected on-demand and instead opted for AM/PM, which costs a lot less, both in terms of the price paid for the delivery itself and the fulfillment, with the added bonus of generating far fewer customer-service issues, since the delivery is less time-sensitive.
Also, with sufficient volume and density (such as proximity of delivery locations to one another), AM/PM delivery can be comparable in cost to discounted UPS Ground “Zone 1” delivery.
These companies, as well as the wise retailers who are not working exclusively with a startup, such as Target, Amazon, and Google Express, can offer their customers various same-day delivery options because they work with the courier industry. The courier industry performs approximately two billion deliveries per year, and has decades of experience providing cost-effective same-day delivery.
And whereas delivery startups have limited coverage, couriers are in every North American market and offer every service level imaginable. The industry already can provide AM/PM delivery, which requires a facility to consolidate volume across shippers and to coordinate different drivers to perform pickups and deliveries.
None of the today’s delivery startups have such facilities or coordinating capabilities. These startups also lack the kind of enterprise-class software platform that Amazon designed and built to manage its multi-market, multi-service level same-day operation to a consistent customer experience. Transportation management software can’t provide these capabilities, such as consumer alerts for each step in the delivery process and dashboards that identify poor performing drivers.
As it first did by offering free shipping and subsequently with low-cost, two-day shipping, Amazon continues to shape consumer expectations around ecommerce delivery, and am/pm is the new standard it is pushing. In fact, it’s not too much of a stretch to envision a future where consumers won’t simply accept anything longer than next-day delivery and will insist on having a variety of same-day options.
To keep Amazon within view, retailers must halt their current risk-averse, noncommittal attitude, and go “all in” with an investment-minded approach. This may involve a two-pronged approach – working with both startups and couriers – and building a software platform or buying one from one of the emerging technology companies that enables retailers to work with multiple same-day providers and expand across the country while maintaining control over the customer experience.
Anything less, and retailers will disappear from Amazon’s rearview mirror.
Rob Howard is CEO of Grand Junction