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Online Delivery: Adjusting to The New Normal

Imagine the times when in-store aisles were optimised for foot traffic and retail therapy, featuring better product discovery, impulse purchases and time spent in-store. The coronavirus pandemic has changed that almost overnight. Six months ago, on-demand home delivery was far from mainstream - a luxury for those willing to pay extra for delivery services and convenience, skewing towards young professionals in big cities. Now everyone is willing to order everything from household staples to ice cream on-demand. Stores, which were struggling for customer growth and retention are scrambling for more fulfilment capacity. Demand boom, which the experts believe is likely to persist even after the pandemic ends, makes it worthwhile to analyse the future of online marketplaces, and what opportunities this brings for the suppliers, the consumers, and the platform itself.

This market inversion has led to a growth of online delivery marketplaces, with even bigger market players in other segments pivoting their business strategies around home delivery. Delivery service marketplaces have inverted from demand-constrained to supply-constrained almost overnight, but new entrants in the delivery space have reportedly struggled with profits, reporting a boost in sales but thin margins. They claim that it is not terribly profitable, and it probably gets unprofitable with more orders. While many restaurants and supermarkets prefer the lower costs and hassle of having customers collect orders at stores, others see it as a threat to their existing customer relationships that could have been better taken care of, had the customers walked into the store. Online delivery was never a core part of these supplier’s revenue and made up only a small chunk of the total orders.

The issues and challenges that marketplaces face today are logistical and reputational, arising from increased demand and customer awareness rather than challenges arising from low consumer penetration and slim demand for services. Consumers are holding brands and companies to a higher standard than previously, favouring those perceived as doing more for society. Pre-crisis, a common complaint on the platforms was that drivers weren’t receiving enough orders. Now, those same drivers are overwhelmed with demand, and platforms have to figure out how to build product solutions to help stores balance their delivery loads. There have been inventory stockouts, closed stores, and supply chain disruptions due to COVID-19 — all while the customer service team has been inundated with order volume. That’s consistent with the experience of all mid-sized delivery platforms, and even that of Amazon. These platforms have had to switch their focus overnight and develop expertise around the new supply-side constraints. The bigger problem here is that many suppliers didn’t have the infrastructure set up to make delivery work at scale.

Among all vociferous trumpets about ‘the demise of commuting’, ‘the death of retail’, and ‘the collapse of globalisation’, many executives have come to assume that everything will change accordingly when the recipe for survival is supposed to be a thorough transformation. The economic crisis does not necessarily spell the end of entire industries or companies but it does weed out business models that fail to pivot towards the new reality characterised by shorter value chains, remote work, social distancing, consumer introspection, and enhanced usage of technology.

As such, now is the time for marketplaces to help their suppliers invest in infrastructure and technology, and indulge in business practices that will enable them to compete in a world in which having a delivery sales presence is essential. Now is the time for them to shift their focus from customer acquisition and retention to investment in metrics for supporting retailer operations. Platforms can be a part of the supplier side transition which, in fact, is happening organically. With in-person retail restricted or outright eliminated, suppliers have been reimagining their store layouts and operations around online fulfilment and omnichannel retail, simultaneously leveraging marketplace platforms, a self-managed online presence, and traditional in-person sales.

They can identify and share best practices around staffing and delivery processes, and provide technology solutions to help small businesses optimise their operations around delivery, with, for example, cloud-based inventory logs and modern point-of-sale systems. Marketplace platforms have vision into the whole market, which enables them to predict demand — an advantage they should use to the benefit of their suppliers. This could be helpful in forecasting when to schedule extra drivers on an hour-by-hour basis, and staffing driver teams in direct proportion to order volume. This can also increase capital efficiency by helping stores match inventory levels to predict future demand. Platforms can lower their tax rates to increase supplier participation — especially among chains and other established supplier networks. Food delivery marketplaces’ supplier-weighted cost structure may have worked when restaurants saw having a small stream of delivery orders as a promotional subsidy for in-person traffic — but it isn’t working in the current, in-person demand constrained marketplace environment. Likewise, some fees should be shifted over to the consumers, since they’re now the ‘long’ side of the market. In particular, it might make sense to institute per-order delivery fees, to encourage consumers to place large delivery orders instead of more frequent small ones, as well as to make it more valuable for a retailer to take an additional order.

Before COVID-19, a delivery service’s performance was mostly determined by convenience, speed and price. Now, by contrast, safety, availability and breadth of selection are the new priorities. Customers are placing bigger orders and are comfortable with longer lead times with ‘acceptable’ estimated time of arrival windows widening. Platforms also have the leeway to shift customer service efforts to prioritise responsiveness to retailers and allocate developer resources towards solving suppliers’ operational problems. All these solutions will help keep in place, exactly the right products on the supplier’s shelves. These improvements will benefit both parties but would require information sharing and communication on the part of the platforms.

When suppliers make the best or most effective use of marketplace transactions, the consumer experience on the platform improves too — often due to increased availability, selection and price options. Overall, this results in much higher conversion rates: a customer with three stores and 1,000 items to choose from spends 67% more per session than a customer facing just one store with 300 items. Orders are processed more smoothly, and with fewer errors that will help translate fleeting customer relations into stronger consumer engagement post-crisis. Better and more optimised choices lead to more bargaining power in the hands of the customers, thereby increasing satisfaction and chances of application reuse. Bars and restaurants will eventually reopen and consumers will become comfortable shopping for goods in-person again but the supplier networks that marketplace platforms build will remain. When platforms invest in suppliers as partners, those suppliers will come out of the crisis stronger, improving the customer experience in the long run. It’s a three-way win — for suppliers, platforms and consumers.

As worried consumers move to shop more online, choosing online platforms is an easy decision — with a click of the button, they can buy almost anything. But for sellers, doing business with them is a less straightforward proposition. Although partnering opens up access to more customers and offers operational efficiencies, brands risk leveraging power in favour of the platforms. Thus, they face an unavoidable dilemma — form the partnership and risk ceding profits, or eschew the partnership and forgo the operational cost savings and access to new customers. A big threat to these established brands is consumers’ increased willingness to experiment with different offerings during the crisis. Research suggests that consumers react badly even when the bad news extends beyond the company to its supply chain. They are more likely to believe that a company’s product is inferior in quality when there is a supply chain mishap, even when the product quality has nothing to do with the supply chain problem. They assume a product has decreased in quality whether the supply chain problems are related to an economic issue (like consistently low profits), a social issue (like racial discrimination in the hiring process), or an environmental issue (like polluting). Brands must, therefore, realise that pivots must be a lateral extension of the firm’s existing capabilities, cementing — not undermining — its strategic intent.

mehul.goyal

Mehul Goyal

A proud intuitive empath surrounding myself with positive things and a meaningful career. I like bringing people together and that’s what landed me to pursue a bachelor's degree in Management Studies(BMS) at Delhi University.

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