Survey on eCommerce Logistics ___________________________________ March 2016 Amitabh Sinha, Stephen M. Ross School of Business, University of Michigan, Ann Arbor MI 48109. Email [email protected]. Research assistance for this survey was provided by Megan Graham and Sujay Shetty, who were both undergraduate students at the University of Michigan during the 20152016 academic year. They are supported by the university's Michigan Research Community, a residential affiliate of the Undergraduate Research Opportunity Program. ______________________________________________________________________ As is well known, ecommerce has been growing rapidly in the retail space. Since its beginnings at the end of the twentieth century, it has continually pushed business owners to innovate and produce novel strategies as many different companies and their associated products engage in ecommerce. In January 2016, we deployed a survey in order to better understand customers’ needs and wants of ecommerce supply chains in an attempt to understand what kind of business strategies might be most effective when approaching ecommerce supply chains. This survey was deployed through instant.ly, an online service that enables clients to create, deploy, and analyze data from surveys that have the ability to reach large groups of individuals to collect responses. We received 173 completed responses from adults in the United States, and demographically, they represent a reasonably if somewhat small sample of US adults. These responses are all anonymous. Similar surveys were deployed in the past years of 2014 and 2015, and we have compared some of that data to the current survey results to arrive at conclusions and trends about what is happening the ever-evolving world of ecommerce.

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Main Observations from the Survey In ecommerce, there is an increasing variety of ways that customers can receive the product they purchase online. Lately, Amazon and other companies have started experimenting with different supply chains such as delivery to locker or delivery by a third party. In one of the survey questions, we listed different items and then asked what kind of shipping the customer would pick from. The most popular response for all items was simply standard shipping. In-store pickup was second most popular for all items. However, groceries were an item that customers said they would not buy online. Expedited and same day averaged around 10% for each item. There were few takers for the other choices offered as well. This could speak to the fact that people aren’t always aware of the newer and non-traditional methods, or the fact that they aren’t offered in their area. About 10%-15% of people who stated they would not buy the item online for each category, other than groceries for which the figure stood at 40%.

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Another aspect of ecommerce that is important is to look at customers’ willingness to pay for certain items to be shipped same day. Response showed that for more expensive items, customers were willing to pay $10 for a $400 TV, and when it came to a $1000 MacBook Air, customers were will to pay upwards of $20 to receive it the next day. Even for clothing items, about 43% were willing to pay around $4 for shipping. This suggests that there is indeed a certain willingness to pay for fast shipping. As many different distribution options are available, we were curious to find how often people used different ones. Other than standard to house delivery, in-store pickup or drive-up has been perceived as one of the other most popular methods. Our question was “Have you ever chosen in person store pick-up, or drive up pick-up?” 69% of survey takers responded yes, showing that this is a method that many people used. By finding this out, it allows us to help companies know that they should try to have the most accessible options for in-store pickup, and be able to make the most of this option.

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One of the central premises of successful ecommerce is providing incentives for customers to make more purchases. In order to do this, ecommerce points-of-sale need to have attractive features that would not have been originally afforded customers. Question 17 provided us with 4

what factors were most prevalent in leading survey takers to shop online rather than in a brickand-mortar store for their last online purchase.

Lower prices seemed to be the greatest driver, with 121 participants out of the total 175 marking it as a reason, and 62% of those participants (75) considering it the as the “first rank” reason. Other big reasons included “fast shipping”, “Convenience/Faster than traditional retail”, and “Better range of options”. This makes clear that customers are most conscious of cost more than any other factor. Although perks like fast shipping and convenience are perks that customers value, the cost of the item still proved to be the most important feature by far. Successful strategies in ecommerce supply chains will likely need to employ more cost-cutting and cheap methods in order to satisfy the customers’ desire for low prices.

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The kind of delivery option customers actually chose can help explain what customers value most in their ecommerce purchasing experiences. Question 21 asked what kind of delivery option survey-takers utilized for their last ecommerce purchase. Standard delivery was the most popular choice by far, with 71% of respondents choosing that option. Expedited Shipping and In Store Pick Up where the lagging runner-ups with 11% and 9% of respondents using that respectively. Same Day shipping only had 6% of respondents who utilized it, and Pick up from a Specified Location (like a locker), Drive Up, and 3rd Party Delivery only had 1% of respondents each. This shows that customers are very cost-conscious and, for the most part, seem unwilling to pay higher prices for faster delivery options. Some of the low numbers with services like Pick Up from a Specified Location may have small numbers due to these services being far less prolific than their counterparts. If Pick Up from a Specified Location helps mitigate the “Last Mile” cost problem, then it may end up being cheaper for customers and may become the popular choice if it proliferates. With the information from the questions 17 and 21 indicating consumers are cost-conscious suggests that consumers would want to pay as little as possible for shipping. This is supported by the results from question 26, which asked our survey-takers how much they paid for shipping with their last ecommerce purchase.

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The most popular response was $0, with 48% of respondents claiming that they spent nothing on shipping their last ecommerce order. This not only indicates that customers really want to spend as close to nothing as possible with their ecommerce order, but also suggests that customers are possibly making use of minimum purchase free shipping offers in order to obtain free shipping, and to a certain extent, may be utilizing subscription services such as Amazon Prime.

3-year trends What items do consumers not purchase online? The next chart reports three-year trends in customers' willingness to purchase various categories of items online. For our survey size (between 160 and 180 every year), the margin of error at the 95% confidence level is approximately 7.5%. Therefore, many year-to-year differences that we see may just be statistical noise. Food and beverages, office and cleaning/home supplies, and hardware have somewhat stronger declines in the percentage of customers unwilling to purchase these items online.

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How Many Business Days did it Take for the Consumer’s Last Item Ordered to Arrive (% of Responses) There is little difference among the three years in how fast packages arrived to consumers. All differences that we find fall within the margins of error. This suggests that there has been no significant increase over the past three years in the speed at which packages have been delivered.

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How Often do Consumers Shop Online (By % of Respondents) There has been an increase in shoppers purchasing more frequently since the beginning of the survey, as it went from 37% saying they shopped once a week to 48% (given our survey design and the options presented, "weekly" includes those who shop online more often than that). There has also been a decrease from to 52% to 42% of customers that shop monthly online. The changes in frequency for shopping a few times a year and only during the holidays can be explained by random statistical variance. Nevertheless, the trendlines are indicative of ecommerce 9

becoming increasingly prevalent among consumers.

Which kind of delivery method do consumers prefer to use?

Our survey indicates that there has been no statistically significant change for the method of delivery that consumers prefer to use, as the variance between years in the chart above can be explained by random statistical noise. Furthermore, the 2014 survey only had the options of 10

Standard Delivery, Expedited Shipping, and Ship to Store, while other options were added in this edition of the survey. We expect to have more useful information on this topic next year, as we collect more data.

Returns, Rewards, and Impulse As many firms, from traditional brick-and-mortar stores to the Silicon Valley internet start-ups, joined to claim a slice of the increasingly large ecommerce pie, they found themselves having to adjust rapidly in losing the comfort, predictability, and control that traditional retail offered. Previously, impulse purchases played a very large role as a revenue source, with 30-50% of offline purchases being attributable as impulse purchases. With an online interface, it becomes more difficult to drive impulse purchases: as the in-store benefits of strategic product placements and the greater consumer confidence in product quality (they can often see and hold the product before they purchase it) are lost. Furthermore, returns are easy to understand and policies are well-established and relatively similar across multiple vendors. These benefits do not necessarily translate over to ecommerce sales. Customers have more protection from impulse purchases, as they would often be shopping from the comfort of their homes, and large banner ads which replaced strategic product placements in-store do not offer the same appeal. Moreover, customers have less confidence in quality of products sold in ecommerce, so researching the return policies of vendors less established with precedent than their brick-and-mortar counterparts becomes common and practical. This leads to a situation where consumers are engaged in more reserved purchasing patterns for their given economic condition than likely ever before. Companies are forced to change their strategies in order to try to reap all the benefits that both ecommerce and brick-and-mortar shopping provide. In our survey, we observe an 11% decrease from 2015 to 2016 in terms of the number of customers who research the return policy of the online vendor before buying online. This seems to suggest that while consumers have become increasingly trusting of ecommerce vendors, they have developed an increased desire for a convenient returns process. Amazon’s innovative approach with their instant refunds on certain purchases, has consumers spending money on their products again immediately. However, it also serves the purpose of building consumer confidence in Amazon purchases. While consumers gain confidence and become more comfortable with ecommerce purchasing, it becomes possible for firms with significant sales to begin retaking the “lost ground” of benefits that brick-and-mortar retail offered. This includes having easy and seamless web navigation to allow consumers to make purchases quickly sans significant contemplation and/or second-guessing. Furthermore, subscription services like Amazon Prime which offer free shipping, or offering free shipping to purchases totaling a certain amount or higher also leads to conditions making consumers increasingly susceptible to impulsebuying by having them purchase items they may have otherwise not bought. An RBC Capital Markets consumer survey suggested that Amazon Prime adoption increased from 25% in 2013 to 40% in 2015. The increased popularity of such programs explain how consumers have become 11

more prone to impulse-buying in ecommerce purchasing. Concluding Thoughts: Ecommerce has been a disruptor to the traditional brick-and-mortar point-of-sales not only in volume of items sold, but also in the way it has changed how consumers think about their purchases. When consumers purchase an item online, they are not only paying for the item, they are also paying for the shipping service and a convenient shopping experience. This effectively complicates the consumer-producer dynamic, as both consumers and producers are forced to consider a set of quantitative metrics for sales and purchases beyond just price of the item. Other factors, such as cost of shipping, customer convenience, and possible forgone impulse purchasing need to be considered as well. Our survey indicates that while consumers value convenience and delivery speed, the cost is the most important driver of ecommerce purchases, as it is the factor that they are most conscious of. In order to utilize ecommerce supply chains that will be attractive to consumers, vendors will need to be sure to make cost central to their ecommerce supply chains, or at least in the marketing of their ecommerce distribution options. Despite this fact, consumers are still very susceptible to impulse purchases on ecommerce platforms, just in a different way than brick-and-mortar shopping. In fact, in their quest for free shipping, consumers are putting themselves into positions which make impulse purchasing very likely. Minimum order offers and subscription services incentivize purchasing items that consumers may not have purchased otherwise. Indeed, the most profitable way for a business to approach ecommerce supply chains may be to offer such deals-at least until other growing approaches to ecommerce supply chains such as Designated/Specific Location Pick-up (like Amazon Locker) effectively eliminate the “Last Mile Problem”.

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