Rethinking the last-mile strategy

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Even though executing the delivery of the product’s last mile accounts for over 50% of total delivery costs, 45% of consumers are still dissatisfied with retailers’ delivery service. Companies are therefore forced to rethink their last-mile strategy.

Online sales are booming. Although 94% of the Dutch population of over the age of 15 shopped online last year, customers are still expected to increase their total spend by 10% in the next five years (source: GfK research, 2019). Offering the end customer different delivery methods for these products leads to opportunities to differentiate or increase sales, but, at the same time, it is a complex and dynamic issue. Even though executing the delivery of the product’s last mile accounts for over 50% of total delivery costs, 45% of consumers are still dissatisfied with retailers’ delivery service. Companies are therefore forced to rethink their last-mile strategy while considering current market needs: the right smart technologies, the right operating model for delivery, innovative approaches to attracting and retaining operators, and a willingness to work together with consumers to make the last mile attractive for both the supplier and the customer.

Capgemini Invent is a thought leader in supporting companies in rethinking their last-mile strategy. To introduce you to this emerging topic, we will happily take you on a customer’s last-mile journey in a series of upcoming blogs. The overview below gives a glimpse of the themes we will cover:

Last Mile Strategy

In this series, we will explain several crucial elements that managers, retailers, and e-commerce companies will encounter in shaping the last mile, as well as future developments therein. Starting with smart hand-over methods, the information will accumulate in each blog, moving into the transportation of the package, globally offered last-mile propositions and dealing with returns. In the final blog all topics will come together, combined with the challenges and opportunities of customer journey starting point: the platformization trend. With data analytics, sustainability, and customer loyalty featuring in each blog, we will start at the end of the last-mile journey: the hand-over to the customer.

Blog I: Where online meets human: hand-over methods as the unique selling point of e-commerce

Today in e-commerce, the customer is in the driver’s seat. Customer expectations are radically changing and they are more empowered than ever to drive change at the retailer. This also applies to hand-over methods, where innovations in home delivery methods and delivery locations are essential in order to meet the radically growing customer expectations, such as the preferences to have a package home-delivered. Furthermore, as the last mile is the biggest cost driver in the entire package journey, companies want to ensure that the rate of first-time-right delivery attempts is as high as possible and prevent carriers from having to visit  the customer a second time. Currently, 75% of first-delivery attempts in the Netherlands are successful (footnote) [i] – a relatively high number, largely determined by the flexibility in check-out options that internet stores offer (for example, delivery in the evening or on a preferred day) and the wide choice of delivery methods (for example, home-delivery or pick-up points). Customer demands and cost efficiency factors drive retailers towards developing smarter handover methods.

Home delivery methods

Delivery methods are straightforward when the customer is at home at the time of delivery. To improve cost-effectiveness, it is crucial to improve the success rate for such deliveries. This is primarily influenced by providing the customer with options to select preferred delivery times, followed by providing narrow delivery timeslots (ETAs) to customers, to ensure that the customer is home at the time of delivery. Nevertheless, companies are also radically developing methods to deliver the package successfully when the customer is not at home. For instance, Amazon provides in-home deliveries through smart doorbell technologies or even the option to deliver a package to the trunk of a customer’s car. Walmart offers the option to deliver its grocery in the customer’s fridge, when they are not home. Installation of such devices would create a customer lock-in for the company, as other retailers would not yet be able to use the smart doorbell and customers would want to get a return for their investment and use the doorbell often. However, next to the clear benefits, there are privacy and security challenges associated with the use of these technologies, for example, theft. For retailers, it is important to think about whether to include smart doorbell technologies and create first- or second-mover advantage.

Pick-up points and lockers

Besides home delivery, retailers offer their customers the option of picking-up their package at a location of their choice. This includes click & collect services at convenient places, such as supermarkets or fashion stores, and crowdsourcing variants (such as Homerr or ViaTim). In addition to the various pick-up points, package lockers are increasingly popping up. Lockers are often positioned in convenient locations such as malls and offices, and will be integrated into newly built apartment buildings in the future. They can be used for both package delivery and return. Lockers can be offered by carriers or by the retailers themselves, leading to white-label-like solutions. Amazon Lockers also accepts packages from other retailers or senders, which signifies their ambition to lock in a key element in the delivery chain that was previously in the hands of a wide range of logistic companies. In the Netherlands, retailers must consider how to include lockers in their services since collaborating with carrier companies for white-label lockers, or using competitor-branded lockers, would make achieving customer loyalty challenging, while setting-up their own locker-solutions (next to other lockers) would create market inefficiencies and increase costs.

What does the customer want?

It is essential for retailers to not only look at process efficiencies, but also at what the customer actually wants. Market share has shifted from the B2B to the B2C market as the formally business-oriented delivery market now also sees last-mile services as a key differentiator. Traditionally, non-digital experiences have fallen short here, as customers compare the actual delivery experience to their seamless experience at successful digital natives such as Uber or Amazon. The key to success is that the actual delivery should create a “wow” moment while (for example) being face-to-face with the customer. Whereas traditional companies innovate behind the scenes (for example, improved sorting and parcel scanning), winners reshape their last-mile delivery by creating wow-moments – in other words, when the customer is really experiencing the last reinventions. Communicating directly with the delivery driver, expanding the number of pick-up locations, or the ability to modify delivery windows will reduce common customer frustrations with delivery – and, in so doing, will even increase loyalty. Another trend today is that customers are becoming more and more environmentally aware. Therefore, offering to take a customer’s returns or left-over packaging after delivering a parcel, will likely increase customer loyalty.

In conclusion, the customer wants to have a broad scale of last-mile delivery options. She wants to select the location and accurate timeslot for delivery. Smart handover methods unlock the possibility for the customer to always be able to select its preferred last-mile delivery service.

In the next episode of our last-mile series, we will explain the different challenges of last-mile transportation and methods to cope with them.

In the meanwhile, we’d love to hear your views on last-mile delivery strategies. Contact us at:

wendy.coster@capgemini.com

I wrote this blog in collaboration with Tom Snijders, Sophie Berg, Ilse van Outersterp, and Maurice Smulders.

[i] Walther Ploos van Amstel – lector city logistics, during ICT & Logistiek event dd. November 2019

 

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