On Demand for Retail Be Like Your Local Flower Shop Issue: March 2018
Be more like a flower shop! Have you ever ordered flowers not because of a Hallmark holiday (like Mother’s Day or Secretaries Day), but because of an event that was triggered – a funeral, job promotion or a birth of a new baby.
When it comes to last minute or on the spot orders, you’ll generally find that the prices are at a premium. You get what you need fast but at a higher price point. If you're a flower shop, it gives you an opportunity to use existing inventory that's on hand. As a customer with time constraints, your selection is limited.
ON DEMAND RETAIL DELIVERY AS A DIFFRENCIATOR This scenario also applies to last minute travel arrangements, such as buying a ticket for a connecting flight, car rental even airport parking. The closer it gets to the time of departure, the higher the price continues to spike!
You can apply this pricing methodology to ecommerce by providing your customers with a product and premium instant delivery services. When you need something fast, you're always willing to pay more on the spot. Why is it that more retailers don't offer on-demand/Uberization services to their customers?
The food services industry has adapted this model and Amazon Prime customers are familiar with this affordable convenience. The need for on-demand, retail delivery will be a differentiator and in the future an expected service norm.
Brick & Mortar will have an Advantage Based on a article written by McKinsey and Company in 2017, they believe that brick-and-mortar stores have an advantage in on-demand delivery models in urban markets. The on-demand delivery model for retail, flips the traditional logistics paradigm – instead of orders being sent from a warehouse and logistics site (traditional hub-and-spoke national model) the retailer would use a crowd sourcing model.
Instant Gratification Retailers such as Macy’s and Bloomingdale’s have already piloted this concept – as of 2014, they offered on-demand delivery services to 17 cities. Same day delivery closes the loop on the “last mile”. Customers are able to get the products they want instantly. Buying something and taking it home, provides instant gratification, instead of ordering something online and receiving many days later.
Customers between the ages of 16 to 27 year olds have grown up in an on-demand economy. Many up to 25% would even abandon their carts if retailers didn’t offer a same day delivery option.
This model works especially well for large ticket items such as home furnishings. In the Fall of 2017, the Swedish home furnishing giant IKEA, purchased an on-demand platform, TaskRabbit, to help their customers get their furniture home and assemble it.
BACK-TO-SCHOOL
Target purchased Shipt for $550 million in December 2017. If you’ve ever picked up a furniture kit from a big box store, you’ll know how difficult it is. First you need to have the right vehicle to transport the large kit(s) and if you have an engineering degree, you might be able to sort through the do-it-yourself instructions! If you’ve ever picked up a furniture kit from a big box store, you’ll know how difficult it is. First you need to have the right vehicle to transport the large kit(s) and if you have an engineering degree, you might be able to sort through the do-it-yourself instructions! For retailers such as home improvement stores like Lowe’s and Home Depot, in their high traffic locations, they’ll offer a rent-a-van service. This service helps customers solve the last mile in getting their over-sized purchases home. The rent-a-van model is an added revenue stream for the retailer – it's based on a first-come-first-serve basis and you're also restricted with how long you can use the vehicle for. Alternatively, you can opt for delivery. But as a consumer you don’t get to choose your times. You’re dependant on the schedule and the route of the logistics company.
By 2020, 15% of deliveries will most likely be done by on-demand or instant delivery services. Many retailers haven’t embraced on-demand services as a main stream delivery model yet. As of today, only a small handful of people are willing to pay a premium for same day service. Customer wants fast delivery service but they don't want to pay for it. How can you make the on-demand model more enticing? “…for customers to see the value in a premium delivery service, they need to be rewarded. Right now customers are very transactional. Once retailers add a loyalty program and wrap it with technology that can provide an instant delivery service, then it will be a game changer.” Gerard Maynard, Co-found & COO, GiftJeenie. The demographic of an on-demand user is generally between the ages of 18 - 34 (millennial), followed by those between the ages of 35-54 and 55 plus. You would think that it was targeted towards high income households – these households only make up 22% of the marketshare. Males use the service more than females – 55% to 45% and majority of the users are Caucasians. You would also think that the on-demand, instant delivery model was dominated by the transportation companies. It turns out that out of a $57.6 billion dollar on-demand economy, $35.5 billion of those dollars were driven by online marketplaces like eBay and Etsy – not the Ubers or the Lyfts of the world.
NEW DAD For anyone who’s been a parent, (especially for your first one) you only want the best for baby! You do all the research, buy all safest products and have your home sterilized from top to bottom. Then the baby comes and everything you thought you knew now goes into the dirty diaper basket. You’re sleep deprived, hungry, thirsty, covered in puke, living in a house full of baby stuff and you can’t seem to find anything. On top of that, you’ve also running out of diapers!
On Demand Demographic • 55% of Users are Male • 63% Caucasian • Millennials Ages 18 - 34 • Avg. Income $50K • Online Marketplaces Driving the Most Spend
Data from National Technology Readiness Survey.
Customers expect on-demand delivery options especially in large, urban city centres. Until now, retailers have always had difficulty with solving the last mile journey. Not too long ago, if a customer was to purchase an item online and it was shipped to them within the week, that was considered fast.
Fast forward and if that is the only shipping option available today, your customers will go somewhere else – resulting in higher abandon cart rates. According to MarketingProfs, 23% of all abandon carts are due to shipping either because of cost or time being an issue!
How do retailers offer instant delivery without loosing profits? On average, in a urban area, shipping will run the gamut between $5 to $15 dollars. When you’re margins are already thin that means you end up loosing out on every transaction. For companies like goPuff, they operate everything centrally from their from warehouses. Each warehouse is dedicated to service a specific location – carrying inventory and cutting out the middleman. By housing their own inventory and using their own delivery staff, they reduce courier costs, control their service level times and ultimately providing top notch customer experience.
For other retailers that don’t want to have the delivery done in-house, partnering with 3rd party, local, gig-economy courier services is key. Some may be apprehensive of using 3rd parties to deliver their goods – fear that the quality of the service may be inconsistent. The gig-economy is growing and the motivators to provide top tier services is very different from a regular delivery business with full time employees and benefits.
Gig Economy to Grow by Almost 3X by 2021 in the U.S. According to Intuit, The On-Demand Economy Worker Study, it's estimated to grow from 3.9 million Americans working in this sector in 2016 to 9.2 million Americans in 2021. The key drivers for this growth is for individuals to gain financial stability – be able to supplement their income through flex work hours. 96% of the people surveyed view gig work as a viable and strategic career path. Those who opt into this career path understand that service is a top priority, to reach their financial goals.
Current expectations for same day delivery is high! In some cases even a delivery window of 1 - 3 hours. Moving forward consumers will also expect deliveries 7 days a week which includes Sundays. Another alternative to meet the challenges of delivering the last mile, is through the use of secondary hubs. Based on a report by CBRE, How Millennials are Driving Change in the Industry, for U.S. based retailers who have space in poorly performing secondary shopping centres, use it as your on-demand delivery hub.
How can you use on-demand delivery to drive more sales? Localization – know exactly all the events taking place in your hood (music events, festivals, food events, parade, etc). Run local campaigns for customers staying at local hotels, AirBnBs, etc. that are coming for a particular event. As visitors they want to see the sights and get the most out of their time. Offer white glove on-demand services – outside of instant delivery, gift wrapping, suggestions on items that are particular to this part of the world. Another way is to offer pop-up stores and flash sales. You can offer flash sales on your mobile commerce app. Push a flash sale, targeting select postal codes you have delivery coverage – it’ll give you an opportunity to sell the aging inventory you have on hand and increase your customer satisfaction with instant delivery.
Larger department stores can offer space for a short period of time to drive new customers and expose customers to a new assortment of items they’d would not carry regular on hand. Offer these impulsive one-off sale moments and mesh it with an on-demand delivery model and your customers will be delighted. On-demand delivery was traditionally scene in high end luxury retail or in five star hotel environments. But as consumer expectations grow and their need to have things faster, it really pushes the last mile to the max. Will you be ready to meet your customer expectations? If you don't already have an on-demand offering, it's time you consider it!
TheAppLabb is a product innovation and development firm. Our goal to improve human experiences through the use of innovative technologies and drive business results for our clients. Over 11 years of experience with 360+ global clients and over 500+ apps built, we offer strategic consulting, UX and UI design, custom software development and out-of-the-box industry solutions for several vertical markets. Let us turn your ideas into reality. URL: http://wwwtheapplabb.com Email: info@theapplabb.com PH: (416) 745 - 3164 PH: (464) 688 - 2786
Version: March 2018 - TheAppLabb Š
References:
McKinsey and Company - How Will Same -Day and On-Demand Delivery Evolve in Urban Markets
https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/how-will-same-day-and-on-demand-delivery-evolvein-urban-markets
Business Insider- AThe CrowdSourced Delivery Report
http://www.businessinsider.com/crowdsourced-delivery-report-2017-11
ETRetail.com - Ikea to Buy On Demand Services Platform TaskRabbit
https://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-buy-on-demand-services-platform -taskrabbit/60881036
Fast Company- Target Just Bought On-Demand Delivery Startup Shipt for $550 Million
https://www.fastcompany.com/40507521/target-just-bought-on-demand-delivery-startup-shipt-for-550-million
McKinsey and Company - Parcel Delivery The Future of Lsst Mile
https://www.mckinsey.com/~/media/mckinsey/industries/travel%20transport%20and%20logistics/our%20insights/how%20customer %20demands%20are%20reshaping%20last%20mile%20delivery/parcel_delivery_the_future_of_last_mile.ashx
Harvard Business Review - The On-Demand Ecomomy is Growing, & Not Jutst for the Young & Wealthy https://hbr.org/2016/04/the-on-demand-economy-is-growing-and-not-just-for-the-young-and-wealthy
MarketingProfs - Why Consumers Abandon Ecommerce Shopping Carts
http://www.marketingprofs.com/charts/2016/31089/why-consumers-abandon-e-commerce-shopping-carts
Paste Magazine - Competition Runs Rampant in the On-Demand Economy
https://www.pastemagazine.com/articles/2017/03/competition-runs-rampant-in-the-on-demand-economy.html
Intuit - Dispatches from the New Economy: The On-Demand Economy Worker Study
https://intuittaxandfinancialcenter.com/wp-content/uploads/2017/06/Dispatches-from-the-New-Economy-Long-Form-Report.pdf
Digital Commerce 360 - Customers Won’t Wiat, So Retailer Can’t
https://www.digitalcommerce360.com/2017/08/31/why-fast-delivery-is-necessary/
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CNBC - Macy’s is Turning to Pop-Up Stores to Spark Sales
https://www.cnbc.com/video/2018/02/06/macys-is-turning-to-pop-up-stores-to-spark-sales.html
Photo Credits:
Terje Sollie - "Classic Clothes Ecommerce Fashion" Ralph Chang - "People Inside Brown Concrete Building in Daytime" Hanny Naibaho - "City Street" Yolanda Sun - "People Taking Photos" Raban Haaijik - "Parking Lot with VW Bug" Maarten Deckers - “Flowers”
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