The Amazon genie is out of the bottle, and it’s not going back in. The introduction of Amazon Prime in 2005 was a highly disruptive force in retail, and, until recently, it was hard to know how successful that foray into two-day free shipping (for a fixed annual fee) would be.
Analysts and consumers alike thought it was a risky, expensive venture, however, Amazon Prime members comprise nearly 10% of Amazon’s purchases, and spend twice as much as non-Prime members. Additionally, Prime membership numbers are expected to grow from 10 million in 2012 to 25 million by 2017. Considering its recent announcement to increase the cost of Prime, Amazon will likely wind up offering different service levels, allowing its customers to further customize the “how,” “when,” and “how much” of their deliveries. In short, Amazon will continue to win business away from retailers who cannot adapt to its growing model.
You might argue that consumers don’t need same-day delivery, but Amazon Prime has already begun to shape mainstream expectations, and soon enough consumers will expect it to be presented as an option. In a survey by Bizrate Insights of more than 100,000 online buyers, nearly 24%, said same-day delivery was important to them, and 6% said they’d consider shopping elsewhere if it was not offered.
While Amazon has certainly been giving retailers a lot of heartburn, there is an antidote. Here is checklist of what’s needed for merchants to offer same-day delivery:
Adopt an Omni-Channel Management Approach
Most retailers manage their ecommerce businesses entirely separate from their retail stores. Same-day delivery requires planning and coordination across these boundaries. Prices need to be aligned and centrally maintained, and loyalty information needs to be shared across channels.
Delivering a high quality, consistent customer experience requires that goals are set and shared across the various arms of the business, and incentives must be consistent throughout.
Gain Real-Time Inventory Knowledge Across Your Enterprise
If you already offer online ordering with in-store pickup, you have checked this box. Many retailers still operate in silos that make it painful to correlate sales of products that are purchased via one channel and shipped via another. Companies need to break down management and information barriers that separate stores, ecommerce, and corporate. They must upgrade their inventory systems to enable centralized visibility across the enterprise, take very frequent inventory counts, increase safety stock levels, and integrate their POS, inventory, and ecommerce ordering systems so they know exactly which products they have, in real time.
Expand Your Fulfillment Strategy
The fulfillment strategy determines where you gather the product that has just been sold, which is why local inventory knowledge and integrated systems are so crucial to any same-day delivery strategy. While delivering from the store closest to the customer may lower delivery costs, it may not be the most cost effective or efficient approach to fulfillment. After analyzing regional sales volume, a company may want to create “hub stores” or “micro-distribution centers” from which all deliveries to certain zip codes are fulfilled.
Reevaluate Staff Utilization and Adjust Labor Mix
Companies need to think about how its store associates will pick and pull product, pack it, and label it for delivery, all within a tight timeframe. Retail labor is typically more expensive than distribution labor, so you may need to adjust the balance, and even change your standard training practices. Then there are the refinements: for instance, how exactly will you notify employees about new incoming orders? The tight turnaround required for same-day delivery won’t work if you only check for incoming orders periodically.
Create a Network of Local Delivery Companies
Actually getting the product to the customer is the biggest cost component, and maintaining a dedicated fleet of drivers is extremely expensive. The local delivery and courier industry has provided time-sensitive delivery services for nearly 100 years, however, offering nationwide delivery typically requires working with more than 80 couriers. It is absolutely necessary for your logistics team to take the time to learn what makes a solid courier so you can select the right partners.
Offer Multiple Delivery Service Levels
The standard same-day service will be a two-cycle AM/PM approach, where a customer orders something in the morning and receives it in the afternoon, or orders in the afternoon and receives it the next morning. Retailers should offer, and charge a premium for, options such as one-hour delivery from ordering, two-hour scheduled windows, or two-person delivery for larger items. A properly executed and priced multi-service offering may well offset the cost of same-day AM/PM service, allowing you to offer it for a fraction of the actual cost.
Leverage Technology to Ensure Quality
Let’s be honest: unless your deliveries arrive through UPS or FedEx, customers will blame you for a poor delivery experience as they think of the courier as an extension of your brand. Since the local delivery industry has historically struggled with quality, retailers need tools to identify and manage quality issues– preferably before they impact the customer. Through the use of the right technology tools, such as automated alerts sent to couriers and CRM software, retailers can collaborate across all levels of their enterprise, and with couriers, on issues that arise; and diagnose the root causes of issues to drive continuous improvement.
Rob Howard is the founder and CEO, Grand Junction, Inc.