Enabling More Profitable Home Delivery

After reading Adrian Gonzalez’s post “Delivery: Revisiting The Logistics Of Elevator Rides,” I thought I would help answer his question about how to achieve profitable growth in home delivery. 

Even in this age of consumers demanding faster and more precise delivery, it’s possible to reduce the average distance traveled per delivery by over 20%, sell millions in premium services and help the environment at the same time. How? By leveraging the concept of delivery personas and the delivery choices offered to the consumer when they are making their purchase.

The presentation by Halford’s Mobile Expert, a provider of mobile tire replacement services, at our recent Routing, Mobile and Telematics Innovation Forum is an excellent example of how home delivery strategies and technologies can dramatically impact operational and financial performance.

There are two fundamental elements to enabling more profitable home delivery operations: Delivery Personas and Customer Steering.

Delivery Personas

Consumers have different buying personas. However, they also have different delivery personas (see Figure 1). By recognizing the different delivery personas that exist and providing delivery options, retailers, and delivery companies can minimize delivery costs and capture additional delivery service related revenue.

Figure 1: Customer Delivery Personas (Source: Descartes)

It doesn’t take a large percentage of consumers to choose different delivery persona options to measurably impact delivery financial performance. Based on benchmarking we have done over the last several years on advanced home strategies and tactics, we have identified four basic customer delivery personas. While one is no better than another or applies in every business situation, some combination will provide the right balance of service, cost and even incremental revenue to improve home delivery profitability.

  • Cost, Cost, Cost: These customers are extremely cost-sensitive and will take the slowest delivery service if it saves them money. They are willing to wait days for the product and care less when the delivery arrives during the day.
  • Parcel Mentality: Typical parcel deliveries are fast, but not necessarily time definite at the point of purchase. These customers are happy with the fast delivery cycle and don’t care if the package is left at the doorstep sometime during the day.
  • Convenience Matters: Many large format items fit into this category. These customers don’t value fast as much as they value a tight time window. They do not want to wait all day for their delivery.
  • Time Is Their Currency: There is a class of customers who are cash rich and time poor. They want their delivery ASAP and won’t sit around waiting all day for it. Most importantly they are willing to spend a lot of money to get goods delivered quickly in a tight time frame.

Customer Steering

Increasing delivery density is critical for improving delivery profitability. It’s possible to provide today’s demanding consumers with a range of options at the point of purchase while also having them help increase delivery density. By economically scoring delivery options, retailers and delivery companies can present unique options to each consumer for what they are buying. Using smart scheduling that knows the existing orders, the routes that will deliver them, and a number of other factors such as road network and vehicle constraints, the delivery options can be scored and the most favorable ones to the retailer or delivery service can be presented in real-time.

The reason this is so more productive versus traditional static scheduling calendars and batch optimization is that there are no assumptions for delivery capacity or presenting delivery options that increase costs. By providing consumers with delivery choices but ensuring that they are the most optimal for the retailer or delivery company, the consumer is happy that they have choice and the retailer or delivery company has significantly denser routes.

The same approach can be taken with “eco-friendly” delivery which is gaining greater attention due to consumer concerns about the environment. Eco-friendly delivery options are more sustainable, but also lower cost because they create delivery density, thereby reducing mileage and carbon footprint. 

Customer steering is truly a win-win-win situation. Consumers get more choices and greater precision, retailers and delivery companies get greater delivery density and profitability, and the environment is helped with lower greenhouse gasses per delivery.  

Case Study: Halfords Mobile Expert

Halford’s Mobile Expert takes the concepts of delivery personas and customer steering outlined above to the next level by applying dynamic pricing to the service delivery options they present to their prospective customers. Potential customer windows options can have different costs based upon the location of other tire replacement service orders. To better align its service price with its logistics costs, Halfords uses the economic scoring of delivery options in an algorithm to determine the most appropriate service delivery price. This allows the company to better account for the logistics costs of each customer it serves. In turn, customers can make a conscientious decision about the service delivery fee they are willing to pay. The results are compelling with a 60% reduction in mileage and 3% increase in service margin. Equally interesting is that Halfords’ customers have not been concerned by this more forward pricing approach, as the company has one of the highest TrustPilot consumer ratings (4.9 out of 5.0) in the market. 

Halfords Mobile Expert and other retail and delivery companies across the globe have shown that home delivery can be more profitable and a growth enabler. However, they’re doing it by engaging the consumer in the purchasing process, providing them with delivery choices that are designed to improve delivery density, upsell the services and help the environment. The consumer is happy because they get to pick the option that best fits their delivery persona. It’s just like Adrian’s “smart” elevator analogy.

Photo of Chris Jones

Christopher (Chris) Jones is Executive VP, Industry and Services, at Descartes. He is primarily responsible for Descartes industry consulting and services for Descartes’ solutions. With over 40 years of experience in the supply chain market, Chris has held a variety of leadership positions including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest, Vice President and Research Director for Enterprise Resource Planning Solutions at Gartner and Associate Director Kraft General Foods. Chris is a thought leader in logistics and has numerous articles and blog posts published in leading logistics and supply chain publications and online forums across the globe. He has a Bachelor of Science in Electrical Engineering from Lehigh University.