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Comment: It’s a great time to be a customer – but at what cost to the retailer?

Customer satisfaction leads to retail success. And, in a post-Amazon customer centric world, retailers are doing some amazing things to provide a great customer experience. From one-hour delivery to endless aisles, Black Friday deals and fitting rooms that talk to you, it’s a great time to be a customer. But, what about the retailer? While many retailers are experiencing sales growth through new digital channels, margins are telling a different story. This raises questions around the cost, value and sustainability of the cross-channel service offer. And – if this is being driven by the customer – what does the customer really want?

The World Economic Forum recently published a YouTube clip on what shopping will look like in 2027. Surpassing anything ever predicted by The Jetsons, the World Economic Forum paints a retail landscape of virtual reality browsing, automated self-stacking shelves, driverless trucks, sensors and ‘bigger than big’ data to create a hyper-personalised customer experience.  Once I recovered from the initial awe of never having to queue instore again, it occurred to me how this level of technological investment and advance in service might impact retailer margins. With online predicted to account for 40% of total sales and drones to be the norm by 2027 – what will fulfilment costs look like and what will this do to the retail cost-to-serve?

Last November, we published a blog on the challenge of managing cost-to-serve in omnichannel retail. In retail today, digital channels are driving significant sales growth. But for many retailers, while sales are going up margins seem to be heading in the opposite direction. This is due to the higher operational costs of managing more channels, more competition and a more demanding online customer.

Adding to this challenge of rising costs, the complexity of the multichannel supply chain means these costs aren’t always visible to the retailer. When costs aren’t visible they can’t be easily or effectively managed. And, while most retailers have a good grasp of their costs at an intake margin level, areas like cost of delivery, returns, and support at a product and channel level are not being measured –  hindering a true view of net margin. By adopting a cost-to-serve model – taking into account the service level by product, customer, channel and the return journey – retailers can shed light on the real impact of their operations.

As retailers continue to invest in digital technology bringing us ever closer to a mobile first, personalised, “phygital” world we need to ensure we understand the cost and value of doing so.

And, if these advances are being driven by the rising expectations of the modern customer one needs to ask; what does the modern customer really want?  Are these investments motivated by a true understanding of the customer’s needs and priorities – or does competitor behaviour cloud this view?

What customers want will vary from retailer to retailer, but – before we invest in fleets of drones – there are some basic customer needs that get overlooked in the excitement of a technology roll out;

1. Customers want accurate product information but 80% of UK product data is incomplete or inaccurate.

Regardless of category, customers place a huge importance on high quality product information when shopping online. Research from Shotfarm has found that quality and completeness of product information has a significant role in customer satisfaction leading to higher conversion, increased trust, less abandoned baskets and fewer returns. All of which help the retailers cost-to-serve through lower acquisition, retention and support costs.

2. Customers want good availability but 63% of retail stock records are inaccurate.

Research from GS1 UK  on what shoppers want has found that a third of customers will not continue with a purchase if their size is unavailable in store – never mind the kiosks, or instore tablets that help customers order from another channel. Similarly, when shopping online, if your website doesn’t have their size available that same third will  look for that style on another website. But, when stock records aren’t correct how can allocation and replenishment ever be on point? Not having accurate stock records not only leads to lost sales but encourages your customers to shop elsewhere.

3. When it comes to delivery, free trumps speed and flexibility

The IGD has found that transport costs have impacted the cost-to-serve more than any other factor in the last 5 years. But is the level of service available on delivery always necessary? It’s no surprise that customers like free delivery but what is more interesting is the tolerance on lead time to receive a free parcel. Retailers are investing more into name day delivery and faster services when our research has found that 73% of UK customers are willing to wait longer for free delivery.

These days, striving to provide the best customer experience is essential in order to remain ahead of the competition, but understanding the true cost of delivering this experience must always be understood.

For more information on managing your cost-to-serve in the digital age visit GS1's website.