Consumers’ shopping habits are constantly evolving, and they have increasingly shifted towards e-commerce purchases with speed and convenience. In the last decade alone, consumers have gone from willingly paying for one-week delivery to expecting free two-day shipping. This demand has forced retailers, despite size, to introduce a free shipping offer, no matter the logistics hurdles. Thus, doing so comes at a great cost to efficiency, as well as sustainability.
In addition to demanding fast and free delivery, consumers are increasingly looking to make purchases with brands that align with their values, and sustainability is top of mind. Recent research found that 50 percent of shoppers this past holiday season were willing to try delivery options that were greener and 47 percent of consumers wanted to shop at environmentally conscious retailers.
This poses a unique challenge for brands. Fast and free shipping are still the top requirements for consumers when selecting a retailer and they will lose out to competition if they cannot meet these needs. Yet, they must also balance the interests of sustainability-conscious shoppers and manage logistics margins.
A possible solution? Incentivizing customers into more efficient shipping.
The State of Logistics
To understand how incentivizing customers into more efficient shipping will be beneficial for retailers, first we must look at the state of logistics. E-commerce throws all longstanding, traditional supply chain and fulfillment principles and strategies out the window because most logistics networks were never built to handle the high volume, direct-to-consumer (DTC) small packages and speed associated with e-commerce orders. Things like scale, consolidation and centralization don’t work in this new model, especially as shipment sizes shrink, frequency increases and delivery locations expand.
To accommodate this shift, brands have moved away from traditional distribution centers and have expanded their networks to add many different channels of fulfillment to support a range of sales channels such as marketplaces, making logistics more complex. For example, you may order four different items during a single transaction and that one order arrives from four different delivery trucks from four different service providers, all at different times during the same day. This is a logistical nightmare that is only made more complex when half of the order is returned, shifting inventory and adding transportation costs. With no signs of change on the horizon, retailers must implement new initiatives that encourage more sustainable shipping practices.
Incentivizing customers into choosing more sustainable and efficient shipping options is the only mutually beneficial solution for both the customer and the retailer. Most companies do not have the capital to continue providing free and fast shipping at their current rate. Customers are not going to permanently change their ways, even those customers aware of the environmental toll, unless they are incentivized, or alternatively, penalized.
Offering an incentive, such as a discount for a slower order, can encourage customers to choose shipping timelines that are more aligned with a company’s logistics network. While it may seem like customers wouldn’t be interested in this because speed is a top priority, Deloitte found that 80% of the shoppers who prefer free shipping are willing to wait three days or more for delivery. Some brands have already found success doing this by offering store credit or gift cards for longer delivery windows. In high volume order periods, such as the holiday shopping season, this kind of incentive could be especially successful in helping to reduce stress on the logistics network. Often those making purchases around Black Friday for the holidays typically don’t need the items until at least a few weeks later.
Additionally, if this concept is coupled with other fulfillment options, like locker pick-up or buy-online-pick-up-in-store, retailers can see costs savings from a logistics and supply chain perspective. Finding a mutually beneficial balance for both the customer and the retailer will be the only way to ensure long-term, sustainable shipping.
Optimizing the ResultsEven with more efficient e-commerce orders, logistics networks must modernize to become an integrated, omnichannel network that supports DTC and wholesale effectively. Brian Gibson, chair-elect to the Center for Supply Chain Innovation at Auburn University’s Harbert College of Business and vice chair of the Board of Directors of the Council of Supply Chain Management Professionals (CSCMP), says that companies must look toward more intelligent order management and transportation management systems to not only consolidate, but also optimize the network. An integrated intelligent network enables companies to prioritize and schedule to ensure maximum profitability while still meeting service line agreements. Then, with warehouse management systems, each of these technologies can be connected so that retailers can make better overall decisions to manage customer demand and move product in the most efficient way possible. If a retailer is able to alter consumer behavior by incentivizing more efficient fulfillment, as well as modernize its logistics network to better handle omnichannel commerce, they will be more likely positioned for scalable growth and success.