Last Mile Innovation: Driving Customer Experience
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1 Last Mile Innovation: Driving Customer Experience National Postal Forum March, 2014 Presenters Ed Van Principal Deloitte Consulting LLP Ed Panzarella Director Deloitte Consulting LLP Ed has more than 20 years of professional experience in consulting and the public sector. He focuses on helping clients in their efforts to develop and execute strategies to transform their organizations using technology and process improvement. His previous work includes financial transformation, governance, process improvement, and procurement for clients in the public and private sectors. Ed has over 32 years experience managing large, complex programs that deliver critical mission capabilities. He has extensive experience in the areas of project management, procurement management, supply chain management, organizational redesign, process improvement, engineering management, and strategic planning. At a leading postal operator, he implemented supply chain management concepts to integrate the postal operator s processes with their major customers to improve processing times as well as reducing costs. 2 1
2 Background 3 E-Commerce Growth Online retail sales are expected to increase by 45% in the next four years, representing a market of over $325 B US e-commerce Growth 1 $ Online Retail Sales (Top Ten Online Retailers) 2 US Online Retail Sales ($B) $177 $226 $278 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20, % 27.40% 23.70% 48.40% 60% 50% 40% 30% 20% $15,000 $10,000 $5,000 $0 $6,660 10% $3,604 0% $3, % -10% Online Sales 2011 Sales Growth E-Commerce is projected to grow by The largest pure play online retailer s sales $100 B over the next 4 years 1 are greater than its next nine competitors combined ($48 B vs. $44 B respectively) 2 Sources: 1 US Online Retail Forecast, 2011 To 2016, Forrester Research, February 2012; 2 Top 500 Guide, Online Retailer, 2012 Edition 4 2
3 Online Stores Become Digital Malls Consumers are turning to online Marketplaces for more selection and convenience Customer Behaviors Selection & Convenience Buying from Unknown Merchants Retail Drivers More Revenues, Lower Costs Online marketplace customers value: Access to new items (80%) Convenience (86%) 1 Most online marketplace customers show little reluctance to purchase from little known merchants 2 Merchants benefit by: Increasing products and revenue Decreasing inventory, liability, and logistics costs 1 Customers experiences with online marketplaces 2 Found new items Purchased from unfamiliar retailers 80% 67% Online Expansion Traditional retailers and online portals have launched online marketplaces 1 Sources: 1 Why Every Retailer Needs an Online Marketplace, Forrester, May 23, 2012; 2 Forrester / Bizrate Insights Q Marketplace Online Flash Survey; 5 Share of Wallet Goes Digital As customers buy more online, e-commerce spending is expected to reach $327 B by 2016, almost 10% of retail sales 1 Customer Behaviors Spending More Annually Average online customer spend will increase 44% by 2016: from $1,207 in 2011 to $1,738 by Planned Online Spending Growth by Retail Category 1 Food Clothing for Adults 48% 80% E-Commerce Late Adoption Each year more web holdout consumers convert and shop in the web channel for the first time 1 Home Improvements Home Electronics Personal Electronics 27% 27% 43% Retail Drivers More Retail Categories Online Retail Categories Selling Online (5% of revenue or more) increased 400% from 2001 to Furnitature Furniture Clothing for Children Luxury Luxery Items Lawn / Garden Jewelry 26% 23% 17% 16% 7% 0% 20% 40% 60% 80% 100% Percentage of consumers who expect to spend more online Sources: 1 US Online Retail Forecast, 2011 To 2016, Forrester Research, February 2012; 2 Trends 2012: US Retail ebusiness, January
4 Who Shops Online in the United States? An Expanding User Base Growth in US Consumers Shopping or Researching Online Replacing Brick and Mortar By 2015, the number of consumers researching or shopping online will surpass 200 million (The NPD Group) Online Shopping by Age Group Total US 60% Age Breakdown 60% of American consumers shop online at least once every three months In terms of dollars spent online, the biggest spenders are between 45 and 54 years old, spending an average of $647 online each quarter (via Forrester Research, Inc.) Ages % Ages % Ages % Ages % 66 and older 48% (Forrester Research, Inc., 2010 Data) 7 What are Consumers Shopping for Online? Electronics Dominate the Online Marketplace Amazon.com Sales by Category Goodbye Circuit City Electronics accounted for 41.7% of Amazon s dollar sales during June 2012 Goodbye Borders Over half of all books purchased globally are purchased on the internet Food, drugs, and other perishable are still primarily purchased in retail locations (edata Source) Share of an item purchased online (Morgan Stanley Research, ecommerce Disruption A Global Theme) 8 -disruption ?op=1 4
5 The Internet is Allowing Consumers to Shop Smarter Customers are smarter Research The majority of consumers research products online before purchasing them 34% are very likely to buy a computer online The cost and time it takes for a consumer to gather info are negligible Social Presence Shippers that engage with their customers via social media provide a direct, inexpensive, and rapid form of customer service. According to the Harvard Business Review, among companies using social channels: 50% have noticed increased awareness among target customers 26% have noted more favorable perceptions of their products or services. (The NPD Group) (Twitter) 9 A Changing Environment 10 5
6 The Rise of the Customer Customers are more connected and able to make more informed choices Commerce TM : The Customer Service Experience Information Technology Support Functions Customer Engagement Marketing, Sales, and Social Media Predictive Analytics Web Mobile Customer Channel The E-tailer Customer Brick & Mortar Retail Partner Marketing Social Networking Kiosk Carrier Retail Tech Human Resources Finance Advertising Social Intelligence Operations and Cost Efficiency 12 6
7 Consumers Expect Reliable Delivery Customers want to remain informed Package Tracking 79% of customers surveyed consider tracking an important feature Fewer than half of consumers are interested in online chat Quality Disparity STELLAService measured the average delivery days of 25 websites standard shipping options: Sites spanned from 2.0 to 5.5 average delivery days Online natives (Zappos, Newegg, Amazon) typically outperformed retail stores sites (Limelight Networks) Average Delivery Times of Sites Standard Delivery Option Site Zappos Newegg Amazon Toys R Us Average Delivery Time 2.0 days 2.3 days 2.7 days 5.5 days (STELLAservice.com) 13 Consumers Expect to Pay Minimally (or nothing at all) for Delivery of Online Orders Amazon offers Amazon Prime: $79 annually Free two-day shipping on all orders From the customer s perspective, a Prime membership can pay for itself in as few as seven singleitem orders Members have an amazing appetite for express shipping according to an Amazon spokeswoman (CNBC.com) Target offers the Target REDcard: Free shipping on online orders 5% off every Target transaction 30 extra days for returns No annual fee Last Mile Innovation can provide value and distinguish a business, helping companies meet and exceed customer needs. 14 7
8 Delivery Tracking and Fulfillment are Very Important From a recent survey*: 71% of consumers surveyed said that they would continue to buy from an online retailer after receiving one order later than promised. But that number plunged to 41% if there are repeated delivery delays 68% of consumers surveyed said their expectations for correct fulfillment and on-time delivery are greater during holiday season as compared to rest of the year 56% of survey respondents said that up to 10% of products they ve purchased online arrived after the expected delivery date Efficiency and accuracy are more critical than ever as consumer expectations rise in parallel with their increase in online shopping * Survey conducted by Voxware Inc. of 600 US consumers 15 Online Retail Innovation Retailers continue to innovate and expand delivery, logistics, and fulfillment options Evolution of Supply Chain Three distinct types of logistics facilities are necessary for largescale online order delivery: Mega e-fulfillment centers: 24/7 facilities operated by e-tailer or logistics provider Parcel hubs / sortation centers: Sort orders by ZIP Parcel delivery center: Handle the last mile and sort by neighborhood (Jones Lang LaSalle) Amazon s Delivery Choices Amazon now offers same-day delivery in 11 American cities Amazon Lockers allow customers to pick up packages (as soon as the same-day) for no charge Sunday Delivery Google Shopping Express Google is offering door-to-door delivery of groceries, home supplies, clothing, etc. from retail partners to customers in the SF Bay Area Same-day delivery is free if the total purchase from each merchant is over $
9 Last Mile Innovation 17 Innovation Scenario USAship, the shipper of the future, offers: Rapid cross-country speed Same-day intra-city delivery Personalized suggestions Rachel orders a crate of wine online from her favorite vineyard USAship: Picks up the crate from the vineyard Alerts Rachel to a special on Brie cheese at her local grocery store USAship then: Flies the wine crate to the east coast Picks up Rachel s brie from her grocery store Sends Rachel a custom recipe to pairs with her wine and cheese USAship contacts Rachel to schedule an exact delivery time later that day Rachel arrives home at 6 pm, and USAShip s carrier delivers her wine and cheese at 6:15 pm USAship Is proactive and and then transmits her positive feedback to the e-tailer 18 9
10 Innovation Scenario Imagine rapid, two-way, on-the-go communication Delivery on-demand. Expecting a rare or valuable item? Click a button when you arrive at home and the package will be delivered within 30 minutes. Last minute trip? Re-route your package to your destination Predictive tracking, accurate within a ten minute window. Estimates automatically updated based on traffic, weather, and system-load conditions; accurate to within ten minute windows Instant notification of delivery Faster and tighter integration with manufacturers, fewer handoffs, eliminating redundant storage facilities Recommendation of local coupons, specials, recipes, etc as customers, manufacturers, and e-tailers exchange information 19 Innovations should improve the customer experience Deloitte s Digital Retail Opportunity Map: E-tailer tactics: Contextual Content Personalized Suggestions Delivery Fulfillment Speed Shipment Scheduling Shipment / Delivery Notification Four Key Retail Value Drivers Traffic Conversion Average Order Size Impact High Medium Low Shippers have an opportunity to positively shape customer interactions with an e-tailer. Loyalty 20 10
11 As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication Copyright 2014 Deloitte Development LLC. All rights reserved 11
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