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A Marketer’s Guide to Delivery Innovations

by IPG MEDIA LAB // 07 Dec 2018

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The delivery experience is becoming part of the product experience as ecommerce grows prominent

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Delivery is becoming an increasingly important part of the brand experience as transactions across categories shift from brick-and-mortar to online channels. It is rarely a part of the consumer journey for purchases made in stores, where the delivery of goods are done in person and thus instantaneous, barring some large merchandise like furniture or home appliances that require home delivery. This is no longer the case for many brands as purchases increasingly shift to digital channels, posing new challenges for all brands to solve.

99% of U.S. consumers now rank ‘fast delivery’ as an important feature when making online purchases, according to a 2018 survey by Dropoff, and 43% of U.S. consumers expect companies to have “much faster” delivery times than the previous year. The rising consumer expectation of instant gratification is beginning to clash with the existing supply chain and transportation infrastructure. The existing logistics network was built to consolidate orders and move them in bulk. This won’t work in the future of on-demand delivery without some significant improvements.

Thankfully, a number of technological advances in autonomous vehicles, drones, smart home, and machine learning are rising to the occasion and shaping the future of delivery in a growing on-demand economy. Automated freight platforms like Uber Freight and Convoy can match inventory with trucking in real time, potentially optimizing the logistic networks for on-demand delivery. Packaging design is changing to better fit the needs of shipping and delivery rather than shelf display. New models of logistics networks, such as a distributed one powered by crowdsourcing, are also being explored as possible future options. Urban consumers will no doubt see quicker changes to the delivery experience thanks to population density and existing infrastructure, but it is the suburban and rural areas that may see the most drastic improvements in the next few years.

Given the fast-rising consumer demand for a delivery experience suitable to the 21st century economy, not to mention delivery’s growing importance in managing brand experience and customer satisfaction, brands across categories would be smart to start exploring related innovation categories that will power the future of delivery and integrating them into the customer experience.

Get It While It’s Hot

Food delivery is the original on-demand delivery. After all, if you order a pizza, you expect it to show up at your door while it’s still hot. The perishable nature of hot meals restricts food delivery to a hyperlocal scope with a big emphasis on speed. For the past decade, startups in this space, such as Grubhub, DoorDash, and Caviar, have been moving takeout orders from phone calls to mobile app, thus removing frictions in placing orders and facilitating an estimated 79% surge in the total U.S. food home delivery market over the next five years.

Domino’s Pizza is a notable early adopter among food brands to embrace innovations in delivery. The QSR brand has experimented with everything from “pizza profiles” for personalized orders to an “Easy Order” button. As a result, 60% of its orders now happen via digital channels. Beyond the digital channel expansion, a significant delivery innovation that Domino’s is pioneering is the idea of delivery to everywhere. A big improvement in the convenience and flexibility of delivery, its new “HotSpots” capability now lets the customer get their pizza delivered to places without a traditional address, such as landmarks, public parks, and beaches.

Besides Domino’s, Häagen-Dazs also offers a similar “deliver-to-outdoor-locations” service through Facebook Messenger by utilizing the geo-tagging feature on our mobile devices. In the future, this kind of flexible delivery could expand into a kind of ubiquitous drop-off that is tethered more to the GPS on our phones rather than a physical address.

As a natural extension, grocery delivery seems to be following the footsteps of food delivery. Ever since Amazon’s blockbuster acquisition of Whole Foods, the U.S. grocery market has been scrambling to preemptively defend their business against the ecommerce giant’s advances. New delivery initiatives play a big part of those efforts. Grocers like Aldi, Kroger, and Walmart teaming up with delivery startups like Instacart and Postmates to build out their delivery services for online grocery orders, which is reportedly growing at a rate 10 times over that of in-store sales.

Right now, the fulfillment of the online grocery orders is heavily predicated on contracted labor, and the issue of compensation for that workforce is still hotly debated and prone to controversy. As more and more grocery sales shift to online channels, some grocers and retailers have started exploring the application of autonomous vehicles and delivery robots for fulfilling orders and decrease dependence on human labor. Autonomous technology could help reduce costs associated with grocery deliveries, making online grocery shopping more affordable and efficient for many.

Last week, Walmart announced a partnership with Ford and Postmates. With this new partnership, the three companies will collaborate on a pilot to deliver online grocery orders to Walmart customers. It will initially use human drivers but the firms say they plan to eventually use driverless vehicles. This is the latest example of retailers looking to both the potential growth in online grocery shopping and the rapid development in autonomous vehicles to future-proof their business. Previously, Kroger partnered with Nuro to test a fleet of robotic cars for grocery delivery. Pizza Hut was one of the partners highlighted by Toyota when the company unveiled its e-Palatte self-driving fleet concept at the 2018 CES.

The Amazon Effect

Starting with food and grocery, the same customer expectations for low-cost, fast on-demand delivery is quickly spreading to other categories. Jeff Bezos’ idea about “divinely discontent” consumers is evident in this regard — as soon as you give them two-day shipping, they start to take it for granted and expect it everywhere.

As more shopping shifts to digital channels, delivery will become a major part of the customer experience. This is something that Amazon clearly knows well, as the company prioritizes building its own logistical infrastructure to guarantee its Prime members free two-day shipping. The Seattle-based giant spent over $25 billion on building its distribution network in 2017 and now has warehouses within 20 miles of half the U.S. population. Now capturing nearly half of all U.S. ecommerce sales, Amazon is a powerful driver in consumer expectations, especially when it comes to delivery. It has been driving hard to shorten the window from purchase to delivery, with free two-day shipping now available for Prime members on millions of items sold on its platform.

More importantly, Amazon has been testing many innovative ways for customers to receive their packages in more convenient ways. The Amazon Key program, which rolled out to shoppers in 37 select US cities in April, leverages smart locks and home security cameras to allow customers to unlock their front doors so that couriers may drop their packages inside their homes. Similarly, Amazon is also allowing shoppers to remotely open their car trunks to allow in-car delivery. Initiatives like this drastically improve the flexibility of delivery and vastly improve the customer experience. And it came as a surprise to no one when news broke that Amazon has assembled a team to work on autonomous vehicle technology.

As a result, traditional businesses are grappling with how to respond to shifting consumer expectations and searching for ways to improve their supply chains to deliver goods and services more quickly and efficiently. Companies of all sizes are adapting — or building from scratch — production and delivery models in order to meet consumer demand as close to the point of consumption as possible, which lowers inventory and cost and improves cash flow.

Among them, Walmart has been heavily investing in improving its supply chain and delivery services to fend off Amazon’s advances. In addition to the aforementioned foray into autonomous vehicles, the global brick-and-mortar giant has also been testing automated technologies from Witron to stack and load products more efficiently and help maximize available space on delivery trucks to its store network, which, prior to the rise of Amazon, was arguably the most extensive and robust logistics network owned by a U.S. retailer.

Amazon’s impact on the modern delivery experience is also evident in the increasing experiments with drones. Amazon’s Prime Air initiative has been in development since late 2013, and it has been carrying out limited testing of drone deliveries here and there, going as far as patenting a beehive-looking drone distribution hub. Yet, there has been no words on when Prime Air would be rolling out in any official capacity. In July, Project Wing, Google’s moonshot division focused on autonomous drone delivery , got upgraded into an independent company under Google’s parent company, Alphabet. Similarly, Mercedes-Benz showed off a beehive-like concept for carrying delivery drones around in a van, pointing to a future where drones would work with autonomous vehicles to handle last-mile deliveries.

By and large, however, U.S. drone companies are still battling red tape from regulators for test permits, thus still stuck in early stages of development. At this rate, mass adoption of drone delivery likely won’t occur until after 2020 due to regulatory barriers, technical issues, and low consumer acceptance. In contrast, drone delivery has progressed further in China, with ecommerce giants Alibaba and JD.com leading the charge.

Regardless of regional differences, it is clear that the deployment of drone-powered delivery will give wings to local businesses to deliver orders to customers in a prompt manner. By taking it to the sky, drones can skip over the congested road traffic and drastically cut down delivery time. Once a fully automated network of delivery drones is established, local businesses, including restaurants, pharmacies, and grocery stores, will have a fast and reliable way to deliver their products to customers.

The Future of On-Demand Delivery

The rise of the on-demand economy is also a driving force behind changing consumer expectations, causing ripple effect through supply chains, regulations, and investment. According to a survey by Burson-Marsteller, 86.5 million Americans (42% of the US adult population) have used an on-demand service. As a result, this economy is shifting power away from businesses large and small and giving it to consumers, who now expect to receive what they want, when they want it.

Similar to the aforementioned Domino’s HotSpots initiatives, new category entrants like What Three Words have created new possibility to expand the context for delivery services. By dividing the world into a grid of 3m x 3m squares, they assign each grid with an address denoted by a unique set of three words, which becomes useful when you are meeting up with your friends at a music festival or ordering takeouts while sitting in Central Park, thus vastly expand the possible destinations for deliveries and unlock new contexts for consumer interactions.

As many on-demand services like Uber and Airbnb have demonstrated, there is great value in developing a two-sided platform that modularizes the existing supply and dynamically matches them with customers directly. Empowered by the rise of crowdsourced, digital-first options, consumers today no longer need to rely on traditional supply chains or broken business models. Instead, they can look to each other — and their smartphones — to fulfill virtually any need.

The way commerce is moving around in cities is dramatically changing already, and the potential applications of blockchain technologies in supply chain management, as well as other promising last-mile delivery solutions including drones and automated fleet, could further decentralize the current model and improve its efficiency. Perhaps one day soon, our most recent online order will simply come along with our next autonomous Uber ride. After all, Uber is already utilizing its fleet of drivers to power services like UberEats and UberRush.

Interestingly, this vision of a distributed delivery network powered by crowdsourced couriers stands in stark contrast to the hyper-centralized inventory model that has also been gaining traction. Virgin Hyperloop One and DP World have launched a new joint company that looks to revolutionize the freight industry by using super-fast capsules propelled by magnetic levitation for land cargo transportation. aiming to deliver at over 600 mph. This means that a package could be delivered from its factory in China to a European warehouse in a matter of hours. If such things come to be, then a centralized inventory structure could be theoretically possible upon a super-fast global logistical network to fulfill the need of on-demand consumers, although logistical challenges will no doubt remain for those living in remote rural areas.

Looking further, the future of on-demand economy would possibly involve automated drones or robots handling deliveries, and consumers receiving goods even before they realize they need them, thanks to IoT-powered replenishment programs and predictive algorithms. How long it would take until we get to that future, however, depends as much on related regulations as technological developments.

Ultimately for brands, the future of delivery is all about positioning your brand closer to your consumers. Providing a seamless, flexible delivery experience could be difficult for companies with limited logistical resources or complex supply chains. Therefore, outsourcing shipping responsibilities to lean, tech-enabled startups can allow them to ship to consumers within smaller delivery windows and develop new service-oriented initiatives.

As an increasingly important consumer touchpoint, delivery also presents opportunities for brands to add related services to deliver more value to shoppers. IKEA, for example, acquired on-demand services company TaskRabbit to integrate furniture assembly services into its shopping experience, therefore saving them the troubles post-delivery. Walmart recently also expanded their partnership with home service provider Handyfor a similar assembly service.

It is clear that consumers now consider delivery — its speed, cost, and overall convenience — to be part of the product. You can see this reflected in IKEA’s customer-oriented approach towards delivery services, and jugganauts like Amazon and Walmart are clearly heading that direction as well. With that in mind, brands need to optimize the delivery experience, integrate it into product development, and develop similar services or maintenance bundles as part of a holistic delivery experience, so as to ensure consumer satisfaction.

 

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