What’s More Important Than Speed to Online Consumers?
As a result of the pandemic, many consumers turned to online shopping as a convenient and safe way to get their groceries, and as cases of the Delta variant increase across the nation, this form of grocery shopping shows no signs of slowing down. The latest Gallup research affirms an uptick in online buying, showing that nearly a quarter (23%) of people are ordering groceries online, nearly double the 11% share from the pre-pandemic (i.e. normal) year of 2019. However, the long-held assumption that speed is the most important online delivery factor for e-commerce customers is being upended by new research released in the article "Online Shoppers Don't Always Care About Faster Delivery," published by MIT Sloan Management Review.
The article is based on an analysis of the preferences of online shoppers of a grocery chain across 152,195 purchasing instances. The analysis found that a grocery shopper is willing to wait 10.8 hours longer for a delivery if the delivery window is one hour shorter, and will wait an additional 7.5 hours longer if the delivery can be received on a preferred day of the week, all else being equal. The data also showed that customers tend to prefer to receive orders at the end of the week rather than on weekends.
Customer loyalty and basket sizes are also factors in grocery shoppers' delivery preferences. Customers who have different levels of loyalty to the retailer have different delivery preferences. For example, repeat customers are willing to pay more for the same delivery attributes, compared with other shoppers. Moreover, customers with very large baskets are willing to pay double the delivery fee to improve delivery-window precision by one hour.
"Precision instead of speed is key," said Pedro Amorim, assistant professor of industrial engineering at the University of Porto and co-author of the MIT Sloan Management Review article. "Executing a strategy dedicated to speed alone can be expensive, particularly for grocery retailers, whose margins are notoriously thin. There is a less costly option worth considering: analyzing operational data about delivery patterns."
Amorim and co-author Nicole DeHoratius, an adjunct professor of operations management at the University of Chicago Booth School of Business, provide four recommendations for retailers:
- Invest in data and analytics infrastructure. This includes tools that collect and manage data on customer behavior, such as how they navigate through a site. It's also essential to track purchases across both online and offline channels. That often requires changes in data management to give cross-functional teams access to data from both channels.
- Collect and analyze customer-specific time-slot selection data. Retailers just beginning this effort can focus on basic descriptive analytics that highlight what attributes customers prefer, on average, given the options chosen by customers at the moment of checkout. More advanced teams can deploy discrete choice models to understand willingness-to-pay characteristics across customer segments and various order types.
- Understand what delivery attributes drive loyalty and repeat purchases. This requires the retailer to have some capability in predictive analytics. Questions of interest include whether different customer segments prefer one delivery attribute over another.
- Work across teams to roll out new delivery strategies. To capitalize on their newfound understanding of customer preferences, operations and marketing teams must collaborate closely. Operations can design the fulfillment strategy that best meets customers' needs. Marketing can promote the improved service and communicate how it differs from competitors' delivery options.
"Analytically minded retailers can craft delivery time slots that are unique to each customer, based on revealed preferences," said DeHoratius. "I strongly encourage retailers to rethink their operations to optimize not only on speed, but also the most appropriate combination of speed, precision and flexibility."
Cambridge, Mass.-based MIT Sloan Management Review is an independent research-based magazine and digital platform for business leaders published at the MIT Sloan School of Management. It explores how leadership and management are transforming in a disruptive world.
