The Last Mile: Controlling Costs and Consumer Satisfaction

Above view of business team sitting around table and working

Optimizing the “last mile” is one of the final steps put into play by retailers to stand out from competition, generate more sales and build customer loyalty. Missing this step would expose them to a high risk of dissatisfaction and attrition.

While retailers struggle to keep their customer base, they also have to cope with rising costs linked to delivery and return issues, another essential element of this final step. Reversing these costs to customers is not a good option because they want free or inexpensive transport, also likely provided by competitors.

Managing the problem of the last mile makes it possible to establish closer links with the consumer, which is advantageous for pure players or retailers who mostly have online stores. It allows them to collect personal data for analysis, such as delivery preference, product reviews or dissatisfaction data relevant to returned products.

Amazon, the last mile precursor:

  • There is no doubt that today, Amazon is the master of the last mile in the retail industry. Amazon’s ability to deliver their products quickly (even by drone) has set the bar very high for its competitors. And for good reason, its own division “Fulfillment Services” now handles more than two billion packages per year by independent suppliers. It is not surprising that Amazon continues to innovate around its capacities in last mile management. Consumers prioritize good delivery management, clear communication and simple return processes. According to a study conducted by Narvar on 1,000 American consumers:
  • Timely delivery motivates 72% of consumers to be repeat customers
  • 70% believe that a simple exchange or return process would keep them as customers
  • 60% opt for a distributor providing an exact delivery date, 42% do not believe in the timely arrival of their purchase.
  • 49% are concerned about the package condition upon arrival.

Balancing Consumer Expectations and Cost

The consumer puts great importance on the how the last mile is executed. The dilemma faced by retailers is meeting the customer expectations while keeping costs low. “The problem of the last mile affects all consumers but it is also often the most expensive part of logistics processes,” said Jason Searcy, Supply Chain Senior Manager at Capgemini.

In their 2016 annual report “Making the Last Mile Pay” Jason and his co-authors provided the example of ordering a meal online costing about $20, more than three times the price paid by the customer at a supermarket.

Retailers have tried to transform this paradigm by providing free delivery in the form of a subscription. This method has been unsuccessful until the recent solution of Amazon Prime. Walmart had to cancel its ShippingPass program after seven months and now offers a two-day delivery option, starting at $35. Amazon is not entirely immune to last mile costs. For example, its shipping costs alone were $7.2 billion in 2016, a 40% increase to the $5 billion spent in 2015.

Last Mile Innovation on the Cutting Edge macys

The growing importance of the last mile has attracted the attention of innovative companies, including the sharing economy models such as Uber and Deliv. “Deliv differentiates its solution from the last mile by giving its customers the opportunity to schedule their delivery date at their convenience for $ 5 more. “According to Capgemini’s report, “It partners with retailers by building on their infrastructure (stores and warehouses for example) and, through their network of independent contractors, allows same day delivery. Macy’s partnered with Deliv to extend delivery on the same day to 17 cities in the United States.”

Pure players partner with sharing economy companies to expand their reach into physical stores. For example, “Google Shopping Expression” is partnering with Uber for same-day delivery. Google deals with the pricing, points of sale and business partnerships, while Uber provides drivers with its UberRUSH, on-demand delivery option. The partners are expanding delivery points.

DHL-logoIn Germany, DHL Parcel has joined Amazon and AUDI to enable items to be delivered quickly and safely to customers’ cars. Some of these disruptive solutions are promising, but it’s unclear whether they will adapt to the increasing customer needs.

“Crowdsourcing options can improve labor costs, but it is also possible for retailers to turn to other organizations to cope with the barrier of these labor costs,” says Jason Searcy. It is also fair to say that brands may be reluctant to outsource their only opportunity to connect with customers, especially when relying on a network of independent contractors.

Will Robotics Update the Last Mile?

To exclude the human from the equation of the last mile is not conceivable or expected. Still, companies like “Starship Technologies” are currently testing delivery robots for deliveries less than a mile in Redwood, California and Washington DC. The maximum speed of the robot is similar to an average pedestrian, making this delivery route less than ideal for long distances. Drones are also becoming more popular and already put to use by the Amazon delivery team. Gartner predicts that the global market for drones will increase by 34% this year reaching more than $6 billion in 2017 and rising to more than $ 11.2 billion by 2020. However, most of this growth in the global drone market will be driven by personal use rather than commercial use. This method will enable longer distance travel, the capacity to carry larger convoys and have many sensors and flight controllers for increased security measures.

Flying uav Quadrocopter with camera

The use of commercial drones will represent less than 1% of the market in 2020 according to Gartner Van Hoy, Senior Research Analyst. Their ROI has not yet been proven in view of drone operational costs and delivery. “Commercial drones will be plunged into logistical problems like the time it takes for a drone to return to its point of origin after delivery,” Van Hoy predicted in a recent statement. “We expect that commercial drones will begin to develop primarily in B2B applications, especially for internal departments of a company for which logistics will not be such an important factor.” Another promising technology to improve the efficiency of the last mile is the use of connected objects or Internet of Things (IoT). “As the price of sensors continues to decline, the number of connected media will grow rapidly,” said Jason Searcy.

“Equipping trucks, products and / or their packaging, and integrating them into Smart Home systems, will create new opportunities for data collection for logistics and retail companies. Trucks often travel almost empty, slowing down delivery times and wasting fuel. “As more and more devices are connected and real-time access is possible, retailers will be able to correct this,” he says. “Stops, returns or receptions can be added ‘on the fly’. The connected objects and media that create this information network will be one of the most impacting areas. “

The Last Mile Works Both Ways: Returns are Important.

One of the most complex challenges around the last mile is how to handle returns. With the rise of e-commerce, overall return volumes have increased enormously. According to UPS, on January 5, 2017 (National Returns Day), 1.3 million parcels were sent back to US retailers; 5.8 million parcels were returned from the first week of January. In 2016, 44% of consumers returned a product purchased online. Returns generate shipping costs. Retailers need to determine if returned products can be resold, and if so, reinstate them to the stock. Customers want to be reimbursed without getting a replacement product. At the same time, retailers face fraudulent returns. The challenge of returning products can be particularly perilous especially for pure players who lack physical points of contact with customers.

The startup “Happy Returns” tries to alleviate these inconveniences. Since April 2016, the company opened sevenhappy-returns “Return Bars” in shopping malls in Los Angeles, San Francisco, Chicago, Washington, DC and Houston Texas. These locations allow customers to return their purchased products to Tradesy, Eloquii, Everlane and Shoes of Prey. Happy Returns collects return fees and in exchange, they oversee the product return process to the associated vendor. “We believe that returns limit the development of e-commerce because customers do not like to take the steps by mail in order to return a product. “Said David Sobie, co-founder and CEO of Happy Returns in an interview for Retail TouchPoints.

David Sobie and co-founder Mark Geller, experts at the flash sales sites Haute Look and Nordstrom, used focus groups and research to identify the three biggest problems based on consumer feedback.

  • Amount of time to get their money back
  • Inconsistencies in return processes: Some e-retailers provide a return label, others request that the customer contact the after-sales service, too many different carriers: USPS, FedEx, UPS …
  • Return the product in its original packaging, seal and return.

From the sellers’ point of view, “If you ask retailers selling clothes, shoes or accessories, their return rate can reach 30 to 40%. This means that one out of three articles is returned. In addition, consumers expect retailers to handle return costs, but this will result in higher returns. There are no guaranteed solutions meeting consumer expectations without building a store network. Return Bars provide a physical location where customers can return their products. Retailers subcontract some of their returns and thus generate savings.

“We collect the returned products before returning them, so instead of having 10 cartons per 10 customers, they have only one for all.” “They save money in their returns and receive less appeal from unhappy customers.” Nowadays, making returns allows you to remain competitive and improve the user experience of customers. “A return reveals the fact that something did not please the buyer. Therefore, our challenge is to ensure the best possible user experience on his return, “says David Sobie. “This allows retailers to retain their customers.”

Data Analysis Shortens Last Mile

Intelligent use of data is crucial to the achievements from the last mile. For example, if a retailer discovers that a product is constantly returned because of a size problem, it may be that the product may have a manufacturing defect. Aeropost manages the supply and deliveries for multiple retailers in Latin America. The company has been dedicated to last mile business activity for three decades. The company manages successful points of sale on click-and-collect. “In some countries where we operate, customers do not expect or want to receive their parcels at home,” explains Nicolas Maslowsky, CMO.

“The reason is safety because they want to open their package with someone on our team to make sure the product has no problem.” Aeropost measures its performance by a metric system. Satisfaction surveys are part of this system, as well as the level of calls received by the SAV. “We want the least possible appeal from our customers because if they come in contact with us, it means that we have failed somewhere or we have not been clear enough in our communications,” says Maslowski. From an operational point of view, the company decomposes all its production processes into “as many parts as possible because the more you break down and measure all the steps, the more you can ensure that each link of the chain,” he adds.

Conclusion

The stakes for last mile success are already important and are becoming increasingly vital to company success. Retailers will need to understand how to meet customer expectations without sacrificing their margins. Partnering with innovative companies is one solution, as well as studying new technologies that respond to specific business cases is another. All retailers must pay particular attention to the data collection and analysis. In the case of the last mile, big data provides valuable information about the customers and ensure that this final operational step is carried out in the best way possible.

Source: “Winning The Last Mile: Controlling Costs While Satisfying Consumers”