Consumers are flocking to on demand delivery, but at what cost to the retailer? Innovative Retail Technologies’ Editor in Chief, Erin Harris, caught up with Ari Kaufman, CEO of Placeable, for his insight on how on demand delivery is shaping consumer behavior and the steps retailers can take to leverage it.
IRT: How is on demand delivery changing retail?
Kaufman: Consumers are now segmented into two categories — economic and convenience buyers — as a result of online and offline shopping options.
The convenience shopper is driven by a sense of immediacy. The convenience shopper will conduct a search online, find the store that carries the product and then go buy it. These consumers are an obvious fit for on demand delivery shopping, as it adds additional convenience.
The economic buyer is attracted to the best price or deal. These online shoppers will typically sacrifice immediacy for price. They will buy online and receive their item several days later in order to capture the best deal. Over time, the economic buyer has become attracted to premium shipping opportunities, such as Amazon Prime, where faster shipping has been coupled with economic incentives to buy online. This movement represents a closer alignment of economic drivers and the desire for immediacy. Therefore, some segment of online shoppers will be attracted to on demand.
IRT: How has on demand delivery affected the shopping behaviors of both economic and convenience consumers?
Kaufman: The attraction of on demand delivery is pulling both economic and convenience shoppers together, driving the convergence of both segments into a single new class of consumer.
The economic buyer has an increased desire for convenience and immediacy, courtesy of services like Amazon Prime, so on demand is attractive to this buyer. As on demand becomes more popular, retailers will find that consumer loyalty wanes and price competition increases. This will further the appeal to the economic buyer. For the convenience shopper, on demand introduces further convenience while continuing to meet the need for immediacy.
IRT: What impact does on demand delivery have on retailers?
Kaufman: As the on demand delivery segment pulls buyers from both the online economic and online convenience segments, both the brick-and-mortar retailer and ecommerce retailer come under fire.
First, some portion of convenience buyers decreases store visits. With on demand delivery, the convenience buyer purchases through a mechanism that delivers products to their home. As convenience shoppers are responsible for the impulse check-out purchase, some percentage of this in-store revenue comes under fire. If you think about how often consumers walk into a Target store intending to buy a single item and walk out having spent $250, on demand delivery will dramatically decrease the impulse buy. Therefore, on demand does pose a threat to in-store revenue for retailers.
Another issue is that on demand introduces offline price competition that has traditionally been reserved for the online marketplace. Consumers are shopping with on demand for products with less regard for where they come from, so brand interaction is already on the decline. On demand delivery aggregators, such as Google Express, Uber, and Amazon local delivery, are certainly driving this consumer behavior further. Brand-based on demand delivery providers, such as Walmart or Peapod, will not be able to compete as brand providers if the consumer becomes solely focused on price. This is consistent with the online economic buyer, who does not buy with brand loyalty. As the on demand consumer loses their concern for brand and increases their focus on price — what made Amazon successful – the lion’s share of online economic buyers can gravitate toward the on demand segment for suitable products. Therefore, on demand also threatens the electronic store revenue model.
Consider how Amazon has diminished the value of a brick-and-mortar retailer for consumers who have been drawn by lower prices to purchase online. On demand will also direct consumer focus on the product and not the source or brand. Therefore, as the on demand buyer grows less loyal to the brand, the retailers will have to begin to compete on price.
IRT: Given the risks on demand delivery poses for retailers, how should retailers respond to it?
Kaufman: Honestly, not everybody has a choice about whether or not to engage in on demand delivery. The ball is already in motion. Walmart is doing home delivery and Target needs to do something about it.
There are brands, certainly specialized or unique brick-and-mortar brands, that do have the ability to retain the value of a store visit, but these institutions need to think twice about running towards on demand delivery. Just because Home Depot can deliver a hammer to somebody on demand doesn’t mean that they should. Store-based services are strong and have inherent value combined with a purchase experience. Think about the trail of people following the orange aprons around inside a Home Depot on a given Sunday. On demand delivery does not solve the problems of those consumers who may have only come in for a hammer.
Retailers with the opportunity to retain store value — as well as online store value — must focus on preserving that value proposition. They should focus on identifying the differentiation between the in-store and online experiences and that of the on demand experience. That which cannot be replicated by on demand, (i.e. service, interaction, options) should be broadly exploited. Consumers will respond to relevant reasons to visit both the online and brick-and-mortar locations when it is pushed in their faces.
IRT: How does technology help retailers embrace on demand delivery?
Kaufman: Retailers should think about personalizing the consumer experience. What is unique about the retailer’s location? What is unique about their online experience? What is unique or specialized to both offerings and how do you replicate that in on demand?
The most important qualifier that convenience shoppers look for is inventory and availability. If a consumer is to go to a retail store, she wants to know that what she’s coming for is there. That’s a given. Just because the product is in stock doesn’t mean that she wants it delivered. Retailers should understand where the consumer is at the time that they’re communicating with them as well as the device they’re using. Some retailers are offering the buy-now-pick-up-in-store option, for example.
Retailers should also engage the reality of a mobile world and create the opportunity for mobile devices to interact in the store environment. For example, create mobile experiences inside the store whereby customers can research products and pricing that are different from store offers by highlighting an online-only or in-store-only price.
Retailers can leverage assets that other stores or brands do not have. What’s unique to a given store is its value proposition. What do customers have to say about you? What do they say about your products and services? What’s the cost of doing business with you? What do reviews say about your products?
All digital information about a retailer can be stored in a single place, in some capacity, and be leveraged to provide the consumer with the best possible experience. That’s not going to happen in Google Express or Uber shopping or in an Amazon shopping environment. Retailers can invest in the organization of and access to their location information so that they get ahead. These retailers will invest in technology that aggregates their rich media. They are collecting reviews about their locations, products, and services. They are making sure that basic name, address, phone number and hours of operations are accurate and accessible web-wide. Leading retailers will build a library of their information, if you will, usable information with which they will ensure that the consumer has an unparalleled experience.