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Sign, seal and drone deliver?

Anna Johnston

In the battle for consumers, retailers are turning to rapid drone delivery. But do customers want the premium service?


eLBSR_DEC_Drones

Imagine this scenario. You buy a product – say, a tub of ice cream – and before it has had time to melt, it reaches your doorstep by winch. This is no longer unimaginable, as Amazon, Google, Alibaba and Walmart are all experimenting towards a rapid delivery of just 30 minutes from the press of a purchase button.


Alphabet, Google’s parent company, plans to deliver packages via drones to consumers by 2017. Amazon has created Amazon Prime Air. Alibaba has talked about high-speed drones capable of flying robotically with virtually no human interference. And Walmart recently applied for permission to test drones for home delivery. 

The radical innovation may seem far-fetched, but if it goes ahead, the headline-grabbing service is likely to change tried and tested distribution models. But do retailers need to be that radical – to have the skies filled with low-altitude flying unmanned robots – in order to achieve the ultimate customer experience? 

Possibly not. David Arnold, Adjunct Professor of Marketing at London Business School says, “Drones are just a small part of a much bigger picture”. Retailers are coming to grips with the importance of immediacy in building their brand, and in driving their bottom line. And what could be faster than one click? Amazon has been the one-click ordering pioneer, having recently launched Amazon Dash Button for ease of repeat purchases. But speed isn’t everything. Today’s customers are more complex than that. 

“Brands are wrestling with the habits of a multichannel buyer,” says Dr Arnold. “In the past, companies knew who their customers were and where they had been. Now, they channel hop.” Customers have become indulged, and their patterns, unpredictable. 

Customers can browse, shop and buy wherever and however they want. They go online to find products, check their mobile phones to compare prices, look at reviews on social media, touch and feel the products in store and experience a sensory awakening with advertising; all before the point of sale. Delivery is an extension of the buying process, but that all important last mile of commerce has costly associations. “This choice of bricks or clicks makes it more expensive for companies, as retailers have to run these multiple channels,” says Dr Arnold.

“They also have to sell more per customer, as distribution is more expensive” (from offering customers choice all of the time).” Added to that, consumers navigate their way through the buying process differently each time. 


Does rapid delivery make economic sense?


It is too early to know whether drones will make economic sense or not, and exactly how the service might work, but companies would almost certainly charge a premium. 

Increasingly, direct deliveries are expensive. “If drones make them cheaper, then great,” says Dr Arnold, “But that might be the only major benefit”. 

“What most retailers want now is BOPS (buy online, pick up in store).

“Because if you go back to the theory of distribution, the reason retailers exist is that it is more efficient to ask customers to go to one place, rather than deliver directly from the warehouse to the customer.” 

More and more, on the quest to delight their customers, brands are finding that free delivery is an unsustainable model. “Earlier this year, John Lewis introduced a standard £2 charge for click and collect orders under £30,” says Dr Arnold, “Despite this charge they are still a long way off the actual cost of delivery per consignment”.

“The best arrangement is to browse online and ask customers to pick up in store. It brings the best of the new and the old. Customers can see everything online (the new), but retailer costs are reduced when a customer collects in store (the old).” 


A beautiful warehouse


When a customer enters a store, there is every chance they will find something else too. The emphasis on stores becoming ‘a destination’ will be ever more prevalent in years to come. Just last month Amazon joined other e-commerce companies that began as online-only ventures, to open a physical store as well. 

“There is evidence that adding a physical store to an e-commerce site can boost sales overall,” says Dr Arnold. “In ‘How to Win in an Omnichannel World’, a paper by a Wharton marketing professor [David Bell]”.  

Today, shoppers operate in a multi, or ‘omnichannel’, retail atmosphere. The research showed that after a store offered the BOPS service, overall sales rose as store traffic increased. Dr Arnold says: “That’s counterintuitive right? Well, not when you think that people want to browse online and buy in store. If you can drive people to store, you can cross sell. And we all know that cross-selling works better in store than online.”

In order to maximise on bricks and clicks purchasing, stores need to change their remit. 

Stores are beginning to work harder. Take Eataly, the largest Italian marketplace in the world, comprising of restaurants, food and beverage counters, bakery, retail items, and, a cooking school. “It is designed like a theme park,” says Dr Arnold. “It’s a tourist destination. You go to the market and you buy your ingredients. Then you go to the restaurant, hand them over and your meal is made specifically for you.” 

And the role of the store will be different. “There won’t be so many of them and they won’t carry as much stock. It is becoming a place to pick up and to go back for a service, or to browse,” he says. 

The ability to browse in a place that has an ambience, and draws the customer in, is opening up new opportunities. For example, Best Buy’s 1,000 stores in the US. The multinational electronics company has strategically partnered with big vendors like Samsung, Microsoft and Sony to create separate stores within Best Buys. It capitalises on the showcasing of a product and the expertise of the salespeople. “But you don’t purchase from Best Buy, you purchase online,” says Dr Arnold. “There are terminals to buy in store. It doesn’t carry stock to sell; only to showcase. And Best Buy is paid by its partners [Sony/Samsung]. It is quite a different economic model.”


Dr Arnold predicts three trends from stores in the future: 


1. The self-service model which has grown over the past few years – think Lidl, Aldi and Tesco – will still remain, but at the price-sensitive, lower end of the market. 


2. The higher end of the market will be far more labour intensive. Burberry is a good example of that. It is famous for being high tech – its staff use iPads in store – but actually, it has a lot of personal shopping assistants, too. 


3. Retailers in the middle market might struggle, with the polarisation of destination stores and the shops used for supplies (like Aldi and Lidl).


Indulged convenience 


Omnichannel retailers will have the competitive advantage in the future, as they understand three things: the importance of customer choice, convenience and of a commitment to customer service. Drones are an attempt to achieve all three. “Deliveries are a problem in cities,” says Dr Arnold. “They take too long because the traffic is bad.



“Companies have been experimenting for years. They have tried bicycles, people just walking, and drones are the next idea. These are all just experiments of how to carry out deliveries in cities.” The unmanned air service is part of a wider ambition to develop brand loyalty through convenience. “We are seeing this in other areas, like Amazon lockers,” says Dr Arnold. They are convenient pickup locations for customers to have their goods sent to, typically en-route home from work. Dry cleaning, groceries and gadgets can all be safely delivered to the locker, for the ease of the customer. “It is an old model in some ways. But the process is being unbundled. You still shop online, but the physical delivery is convenient.”  

Omnichannel retailing is often said to be dictated by systems and company processes, but instead, it is the customer that chooses their route from search to transaction and finally, to delivery. 

With the combination of destination stores, and an integrated bricks and clicks approach, retailers could be flying high. With or without drone delivery? The question still remains.  


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About David Arnold

David Arnold is an Adjunct Professor of Marketing at London Business School.


He teaches on the following programmes:

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