Putting a price on failed deliveries

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Matthew Robertson, co-CEO of software developer NetDespatch, discusses the findings of this year’s IMRG report on UK home deliveries

Can you put a price on failure? That is what IMRG’s 2018 Valuing Home Delivery Review attempts to do: put a monetary cost on failing to meet customers’ expectations around parcel delivery.

E-commerce and the logistics around delivering purchases are a central part of today’s consumer lifestyle, and that’s reflected in the sheer scale of the study. Around 120 million orders and deliveries, goods worth £7bn (US$9bn), more than 200 retailers and 1,200 adult customers were analyzed in this seventh snapshot of the delivery landscape.

The report is a fascinating view of this voraciously expanding, rapidly evolving industry. The figures indicate that to make the right strategic moves to advance the industry, it’s time to broaden our perception of what makes great delivery.

The big numbers… and a big opportunity
£1.6bn (US$2bn). That’s the cost of failed parcel deliveries in the UK. And given the exponential growth of the e-commerce market, this is not surprising. IMRG calculates that the volume of orders dispatched in the UK will exceed the 1.5 billion mark in 2018 – up 32% from 2016.

These figures must also be viewed in the context of increasing customer expectations around delivery speed. In 2016, 450 million parcels were ordered for next-day delivery; in 2018, that number is expected to reach 580 million, more than half of all deliveries. With shorter delivery times there’s less room for error, and higher volumes put pressure on network and carriers; the risk of failure understandably increases.

The costs of delivery failure vary by event, but some of the figures are eye-opening. A consumer is out of pocket by £7.41 (US$9.70) on average when they have to collect a failed delivery from a depot. A late delivery costs the retailer £21.64 (US$28.30) on average, while a lost parcel that has to be replaced costs an eye-watering average of £123.61 (US$161.70). Carriers, too, incur significant costs when they become embroiled in redeliveries.

Although it’s natural to see the downsides in the sheer scale of these delivery failure figures, it does mean that there’s a big opportunity to make a dent in them by getting better at parcel delivery. The key word is ‘better’, not necessarily ‘faster’.

Abandoning speed as a panacea of home delivery
As the authors of the IMRG report point out, as fast as innovations aimed at improving the home delivery experience are implemented, so they are superseded by still higher levels of customer expectation.

I believe that we’ve reached a tipping point where gains will be made by those who focus less on speed and more on managing those customer expectations to give a transparent, accurate and ultimately more satisfying delivery experience. This race to the bottom around speed is creating a delivery dystopia that’s costing retailers, carriers and customers too much. Instead we must focus on getting it right.

Research that we carried out in 2016 showed that what customers really desire most of all is control and visibility. They want to know where their parcel is and when it will arrive. Today’s picking, tracking and dispatching technology makes all this very possible and, when combined with an interactive communication system that updates customers on their parcel’s progress, makes for a much higher likelihood of successfully uniting parcel with purchaser.

Managing and meeting customer expectations
As the report points out, many retailers are putting potentially needless pressure on their delivery network by offering same- or next-day delivery when customers don’t necessarily require it. In doing so they artificially raise expectations of what is possible, increasing the chances that those expectations won’t be met. By rationalizing the delivery promise to what is realistic, and communicating this effectively to customers, there is a far greater chance of meeting expectations and providing a more satisfactory experience.

Clear and transparent customer communications and intelligent use of data are vital to making delivery smarter and reducing the chances of failure. A key factor in failed first delivery is the lack of information about alternative delivery preferences if the first option proves impossible. Most customers are willing to have a parcel delivered to a safe place or neighbor, but this information is often not requested at the point of order. By collecting this data, the retailer can furnish the carrier with more data to help the delivery succeed. Even smarter is offering options that allow customers to change their delivery preferences on the fly and divert deliveries to a more convenient location if this becomes necessary.

When it comes to delivery options, we need to ask ourselves whether we’re offering the optimum service for customers, or whether we’re over-provisioning them with alternatives, which confuses their decision. By establishing the true customer need, rather than assuming that speed trumps all, retailers could reduce the number of options they offer and focus on providing a more reliable, transparent and ultimately better quality of service.

Although putting these options in place may require some investment in customer research and the relevant tracking and communications technology, the sheer scale of the cost of failed delivery means the return on that investment should be swift. There is a lot of wastage in delivery right now, but the technology is there to reduce it if it’s coupled with a concerted effort to communicate better with customers and set delivery expectations more realistically.

The price of failed delivery – more than money
What we also need to keep in mind is that this comprehensive report puts a monetary price on failed deliveries. It’s far harder to quantify the price of the reputational damage that failed deliveries inflict on both the retailer and the carrier. Just type any carrier name into Twitter and witness the frustration that results when parcels don’t arrive when expected.

There is a risk that in trying to be all things to all people, we fail to regularly get anything right for anyone. I believe that in an environment where customer expectations will continue to evolve, the real success strategy is to get better at managing and ultimately meeting those expectations. We should strive to deliver an excellent, reliable service on the terms that deliver customer satisfaction.

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Dan originally joined Parcel and Postal Technology International in 2014 having spent the early years of his career in the recruitment industry. As online editor, he now produces daily content for the website and supports the editor with the publication of each exciting new issue. When he’s not reporting on the latest technological developments, Dan can be found on the golf course or apprehensively planning his next DIY project.

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