Online channels have made shopping more convenient than ever for consumers. A growing majority of consumers are browsing and making purchases from the comfort of their own homes. Big E-tailers have been able to deliver these unparalleled positive experiences by integrating technology and robotics to optimize their supply chain and operations.
Big E-tailers started by identifying a greenfield opportunity, and creating a positive cycle of growth. This was achieved by adapting business processes which improved customer satisfaction. Improved customer satisfaction, consequently,led to an increase in their customer base, resulting in massive inflows of revenue. This massive inflow of revenue allowed them to raise capital at a low cost. In this way, the Big E-tailers were always able to maintain a high level of liquidity. This high level of liquidity allowed them the flexibility to invest more in technology and operations to further improve customer satisfaction, resulting in more customers. This process ultimately led to a closed-loop solution resulting in increased customer base.
E-tailers have successfully implemented this strategy in their nascent and growth phases. However, at present, as E-tailers enter a mature phase, consumers expect much faster deliveries. In an age of instant gratification, there are increased expectations with regard to delivery of services/ orders as soon as next day (maybe even the same day). Big E-Tailers have already spoilt consumers with a wide variety of choices, prices and convenience. Consumers are developing an insatiable need for “What is new?” and “What is next?”. Any buying experience which does not match the current level of indulgence, ultimately creates a negative experience for the consumer. If this cascade of negative experience continues downhill, then at some point it may not be sustainable for E-tailers to attract new customers or even retain the current customers.
Apart from satisfying customer expectations, E-tailers face multiple challenges. For instance, even though E-tailers have achieved economy of scale, brick and mortar (B&M) chains continue to pose a serious challenge to E-tailers growth. As B&Ms delivery channels evolve, B&M chains can directly penetrate the customer base of E-tailers. Losing customer base to competition or due to failure to meet expectation can bear serious consequences for E-tailers. Such factors could potentially lead to a negative growth cycle, resulting in flat or lower revenues with increasing fixed costs.
B&M chains are developing multiple order fulfillment channels, namely, online order and delivery, in store shopping and online order for in store pick up. Under such scenario, the variable cost for E-tailers to fulfill their orders would most likely be higher than B&M chains. This is due to the potential that B&Ms’ delivery and packaging cost could stand to be mitigated by in store purchase or online purchase for in store pick up channels. Even for online order deliveries, the store penetration of B&M chains allows for optimized last mile delivery.
With the E-tailers’ slowing growth rate and B&M send eavour to find the delicate balance between its fulfillment channels, the gap in customer experience delivered by E-tailers and B&M chains will reduce. In the near future, B&M chains are poised to drive the innovation needed to exceed customer satisfaction and eventually get in a position to regain lost ground from E-tailers.
Blog by Fermos