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Is the E-Commerce Industry Offering Undeliverable Promises?

Following the prediction that UK e-commerce companies will ship one billion parcels in 2015, common sense would suggest that the delivery industry will be enjoying a boom period and very fruitful results. However, as City Link’s descent into administration demonstrates, the increased pressures and logistics of terminally-increasing demand are proving to be problematic, as the whole industry careers towards a dangerous impasse.

With the increased competition between e-commerce retailers; consumers have more choice than ever about where to shop and which online store to virtually patronise. This has led to online companies resorting to continually increasing and improving their services, offering unique selling points to attract the desired custom. Unfortunately for courier companies, two of the most popular unique selling points are delivery-based.

Free Delivery

Backing delivery companies into a corner, e-commerce retailers have recognised how attractive free delivery is to their customer base. Rather than eating into their own profit margins or increasing their prices, e-commerce bosses would rather negotiate lower rates with their delivery companies to help support the free delivery claim.

Not only does this manoeuvre reduce the profitability of every parcel the courier delivers, it also potentially leads to a significantly increased demand upon their services. However this game of free delivery chicken does not look like ending any time soon, with participating e-commerce retailers understanding that if they withdraw this service, they are likely to lose custom.

Natalie Berg, global research director at Planet Retail, explains: “As consumers have been more demanding, retailers do not have a choice about free delivery. They need to do these things to be competitive. Online shopping has come so far over the past five to ten years. Websites have been upgraded, we have more payment options and we have click and collect.

“But the one area – and the most important area – where shoppers are let down is delivery. And the retailers do not do themselves any favours by offering more and more – like same-day or next-day delivery. We now have some retailers doing Sunday delivery.”

Next Day Delivery

Logistically-speaking next day delivery provides many obstacles for both the e-commerce companies offering the service and the couriers providing it. A strong organisational structure needs to be in place as well as a fluid approach to staffing dependent upon demand. Entering into a next day delivery contract with a retailer often necessitates increased staffing, in terms of drivers and members of the logistical and office teams.

Dick Stead, executive chairman of Yodel, complained: “The marketplace seems to be demanding more and more – such as next-day delivery – and that will drive up costs. The industry as a whole does not have sufficient capacity to deal with short-term spikes or to deal with extraordinary sales activity. If it is to create that capacity there has to be funding from somewhere.”

However, like the free delivery services, many e-commerce companies have little choice but to offer this service to their customers. Having enjoyed this service, customers are unlikely to want to return to longer waits for their deliveries.

Research from Honeywell revealed that up to 90% of customers will factor the delivery date into their decision whether or not to order – representing a huge market share for the retailer with the most attractive delivery service.

Over Promising

Offering highly-flexible delivery services can also have negative effects upon the e-commerce retailer as well as the delivery companies. The promise of ever-improving services puts the retailer at risk of broken promises and missing the service standards they hope to uphold.

When Yodel suspended their deliveries over Christmas 2014, this reflected poorly on their company as well as all the e-commerce companies who had employed their services. The effect on the latter was perhaps more profound as Yodel can remain somewhat faceless in the order and delivery process, whereas the customers will know which retailers they ordered from – potentially influencing them to never seek their services again.

Retailers will risk losing custom if they ever revoke or soften these offerings – reducing their worth to the customers.

The Solution?

Whilst it is impossible to completely revoke or remove these services, e-commerce companies may be forced to introduce equally attractive alternatives for customers to ensure custom is not lost or reduced.

Increasing the selection of couriers may allow e-commerce companies to fluidly alter their services by the day and level of demand. Courier comparison tools like RapidParcel allow users to discover the most suitable and affordable service for their needs.

Alternatively, Uber are currently testing a merchant delivery programme in the US according to reports from TechCrunch. The taxi giant will be able to offer fluid delivery services alongside their traditional people-carrying tasks – fitting the service into their offerings effortlessly. This move could potentially open up same-day delivery services if Uber manage the logistics effectively.

Martin Lewis, from MoneySavingExpert, has spoken of the potential of implementing more collection points for orders – but this service may not appeal to customers who are used to products being delivered direct to their home. Whilst this will reduce the strain on the courier necessitating delivery to central portals rather than individual properties, it could lead to e-commerce companies offering the service suffering from lost custom.

As the courier and delivery industries continue to tread water in a desperate bid to keep their head above water, it is important that an elegant solution is found and implemented before the annual delivery numbers top the billion mark.

This was posted in Bdaily's Members' News section by Grant Pettersson .