Modern trade, which is currently between 8-10 per cent of the total retail trade in India, has taken about 20 years to grow to this volume. In contrast, e-retail has grown rapidly to about 2 per cent of the total retail trade in a relatively short time of about 7-8 years.
A dimension that is significant in facilitating the growth of e-retail is the ability of firms to sustain their delivery against customer expectations.
Fickle shoppers – how they impact fulfillment
A Nielsen survey shows that the top three reasons for a person buying online in India are: advertising, peer influence and recommendations. The other, and less significant, reasons include attractive discounts, convenience and access to a full range.
The online retail industry is expected to grow at a rate averaging above 30 per cent year-on-year, and so it is important for retailers to ensure that growth is sustained through systematic changes in customer order fulfillment as well as delivery.
In an online survey conducted by Harris Interactive in 2011 on online shopper behaviour in the US, it was found that 89 per cent of shoppers stopped buying from online stores after they experienced poor customer service. Another survey by Bain & Co reveals that the customer is four times more likely to go to a competitor if a retailer’s problem is service-related rather than price or product-related.
Convenience, access, variety, price, peer influence can only take you this far. Customer value created through an effective product and/or service delivery is the parameter that separates e-retailers who corner market share, from those who don’t.
E-retail – Physical to Digital Infrastructure
The traditional retail businesses rarely, if ever, is in touch with the customer. Even when direct customer interaction does happen, it is more around issues a customer has using the product.
While there is the physical infrastructure delivering key parameters of geographical proximity and convenience, individual customer preferences are generally not accurate as far as retail stores are concerned. Brick-and-mortar retailers usually ascertain customer preferences through focus groups, social media interactions, store surveys, campaigns, advertising responses etc – parameters which are generally shrouded in a level of uncertainty.
On the other hand, the e-retail industry lives in the information world. Every individual customer, and their buying behaviour is known to the e-tailer. The move from physical to digital infrastructure offers distinct advantages in terms of customer access, information, scale and convenience. Indeed, in many cases, there is so much data that an e-retail organization does not know what to do with it.
The Flip Side
For an e-tail company, a geographically distributed base of customers demanding immediate fulfillment requires coordination across order planning, warehouse and logistics management and finance processes.
Accuracy of order fulfillment in a business scenario that demands response time in hours is an Herculean task. The coordination required is intricate, across geographical boundaries and needs consistent information flows across the physical supply chain. This is where the traditional retail has significant advantages over e-retail.
The question is: can more data and information about the customer be used to deliver great customer satisfaction?
Fulfillment: Promises Vs Reality
The fundamental difference between traditional retail businesses (including modern retail) and e-retail businesses is the volumes involved in shipment. Brick-and-mortar retail has expanded using push models of inventory deployment that reduces logistics costs per unit dramatically. On the other hand, e-retail firms have seeded ideas of flexibility and choice resulting in customer expectations around responsiveness. An e-customer expects that even single items will be delivered within the same time window as a basket of goods – costs of shipment are not customer concerns.
Despite this, recent trends in e-retail have encouraged and indeed strengthened expectations of performance. But have e-tailers gone too far in chasing Gross Market Value? Here are things they should do to inject a dose of reality in fulfillment.
- Charge customers for shorter delivery times and move the delivery promise into a 3-5 day window.
- Manage the inventory holding – response time trade-off by expanding the network selectively.
- Use last mile delivery as a differentiator to boost sales and drive customer loyalty.
- Create industry networks and partnerships to ensure that there is no overstocking of inventory while shortening delivery cycles to the customer.
- Drive specialisation in the fulfillment of categories within and outside the organisation.
Is the Answer E-Fulfillment?
Services delivered by this function to an e-retailer are essentially the same – identify the products that need to be delivered to a customer, plan and source the product, plan the logistics, manage the warehouse, and create last mile delivery options.
Technology forms the common thread across these functions. E-retailers who deploy effective technology platforms rapidly stand to gain customer loyalty and better revenues in the longer run.
Technology integrated with the parcels is the direction of the future – the parcel speaks for itself as it traverses the logistics chain. Where did this parcel get sourced from? Who handled it? How many time? Where was it stored? Where is it headed? What is its condition?
Mobile and Cloud technology enables these questions to be answered quickly, accurately and consistently. It is exciting times ahead with the Internet of Things taking root in various logistics related operations.
Establishing a physical infrastructure that recognises the nature of each parcel transiting through the network is a time consuming and oftentimes expensive process. Given the direction of the e-retail industry and the maturing customer demands, it would be the appropriate area to invest in.
Combined with the data that the e-retailer generates at the time of the customer order, the parcel can be moved through the chain with greater efficiency than before. The ideal scenario would be to get the product to the customer in a time window comparable to offline retail, but that comes attached with unsustainable levels of cost.
Help Yourself to Help Your Customer
With technology playing an increasingly larger role in the fulfillment function, driving differentiation will need to be a consistent, everyday pursuit.
- Invest in the technology that meets the industry requirements
- Rigorously drive SLAs within and outside your organisation
- Establish a reputation for reliability and consistency
- Set up the differentiated positioning before technology drives everything to a standard
Given that there is a volume of information available about your existing customers, it would be ideal to start with them. Understand how they want their orders fulfilled, when are they happy and what does it take to delight them? How would you want to handle returns?
When a regular customer does not get an order within the specified time window, it is likely that their satisfaction levels have dipped and they slow down on the recommendations. A newer customer – while spending far lesser, is likely to be more forgiving. An offer every now and then around volumes transacted would keep the wheels moving nicely. Everyone likes a good deal!
We live in a world where consistent fulfillment is an expectation – it is a hygiene factor. Differentiated fulfillment through technology can help drive better customer delight and longer term loyalty.
It is best done incrementally, but in quick iterations. Small changes done rapidly are easier to absorb, both by customers and by your own staff . Th is would be an easier, less risky way to using technology to building a barrier to exit.
About the author: Sivaramakrishnan Narayanan is Managing Principal, CGN Global.