DRONE ON (AND ON)

In an earlier blog we examined the developments by Amazon in particular with regard to introducing more innovative mechanisms by which to deliver items to its customers. Instead of simply relying on traditional tools such as mail, it has been actively testing out drones as a quicker and more modern means of delivery.

At first glance it appears to be veering a little towards surrealism and science fiction: the notion of hundreds of small drones winging their way around cities, towns and villages conjures up apocryphal visions of air congestion, collisions and mayhem. I thought it might be opportune to see if Amazon has made any further advances with its experimentations and to assess the response of authorities world-wide.

Let’s briefly summarise the proposed strategy by Amazon.

It plans to fly unmanned and battery-operated drones within a range of several miles of an individual distribution centre. They can fly up to a maximum speed of around fifty miles, carry a package of up to five pounds and they promise to deliver a package within thirty minutes of receiving an online delivery.

They presumably anticipate that this will prove, in the longer-term to be a potential game-changer in the relentless quest for competitive advantage in the customer order delivery space. This has relevance given the numerous alternative approaches that supermarkets and other retailers have adopted to try and overcome major and challenging hurdles such as traffic congestion in major cities. A good example of this phenomenon is London. It is estimated that it takes longer now for vehicles to manoeuvre their way around that metropolis than it did fifty years ago.

We should be careful in this discussion not to dismiss such developments as being surreal and idealistic. We should not lose sight of the bigger picture: that retailers in particular consciously seek to drive improvements in overall supply chain efficiencies and in terms of quick response to the perceived demands and expectations of their customers.

It is not just an “Amazon phenomenon” either. Other large operators such as Walmart in the USA, Alibaba in China and DHL in Germany are actively experimenting or actually using drones across many aspects of their respective supply chains.

It is not just companies wither who are embracing the use of drones.

According to Ken Long, research manager at the Freedonia Group, “The consumer market will remain a key driver of overall sales growth for drones, fuelled by technological advances that are making drones easier to fly, and by the reduced cost and improved capabilities of key subsystems, which are helping to make drones more affordable to the average consumer.” (http://blog.marketresearch.com/the-demand-for-drones-in-the-retail-sector)

We are witnessing consumers in general using drones to capture better and more creative photography shots, getting better pictures at sporting events and so on. Specific sectors such as real estate have also latched onto the concept to get more attractive shots of properties that are going to go on sale.

Such developments outside of the retail sector would appear to strongly support the view that in the near future we will be inundated with drones and they will become a way of life for us.

However we have to consider the likely responses of governments and policy-makers to such a development. What is happening in this respect you might ask?

The issue of safety would appear to be at the core of policy in the UK. Amazon are presently testing out drones in Cambridge and the Civil Aviation Authority (CAA) are willing to take an open-minded view during these experiments because they argue that there are a number of economic benefits likely to accrue. Current regulatory policy means that drones are banned from flying within fifty metres of a building that is not owned by the operator and within 150 metres of a built-up area. Likewise the drone must be in sight of the operator at a maximum distance of 500 metres and a maximum altitude of 400ft. Some prosecutions have taken place – mainly to do with individuals operating drones. We can see that there is a considerable gap between what the current regulations allow and what Amazon is contemplating with regard to deliveries of items to its customer base in the UK.

Amazon Prime Air (to give it its correct title) has run into major legislative problems in the USA. There, the government stipulated that each drone must have its own pilot and stay within sight of the pilot. This would raise serious questions about the economic viability of the Amazon proposed model.

There is no doubt that major retailers such as Amazon and Walmart can wield enormous power and influence with respective governments and we should not assume that potentially restrictive legislation will necessarily close the door to the use of drones as a delivery tool.

Amazon is proposing that a drone airspace should be created within a zone of between 200 to 400ft in the air and that the drones should be equipped with anti-collision technology. They also advocate the development of air corridors.

We have previously discussed other potential problems such as safety (what is the possibility of some of the drones falling out of the air?), the invasion of privacy (the possibility of drones constantly hovering and passing by the window of your eight floor apartment?) and the uses which terrorists could potentially make of drones (probably doesn’t bear thinking about). In the latter case proprietary software designed by retailers such as Amazon should prevent an infiltration by terrorists of their technology. However it does not necessarily prevent them from buying drones on the general market and using them for nefarious purposes.

So what can we say about the future potential of drones?

Some commentators argue that the power and influence of key players such as Amazon and Walmart will inevitably shape governments and policy-makers to allow them to introduce drones as a viable mechanism for delivery. This may be exacerbated if there is a possibility that taxes and other indirect income can be generated from some form of collaboration with such companies and organisations.

Others argue that the present difficulties and hurdles are largely insurmountable and will make for operational problems. This will inevitably make them less viable and too costly if they are to comply with potentially restrictive legislation.

One interesting bystander in this discussion does not appear to feature however: the customer!

To the best of my knowledge there is no evidenced-based research in the public domain to provide any indication as to how shoppers feel about the proposed use of drones as a delivery mechanism. There is a potential opportunity here for some research. I am not convinced that there would be a high level of demand for such a service. Apart from obvious issues such as security and privacy, would you or I be prepared to pay the cost of receiving such a service? Clearly it would depend on what the fee would be?

Let’s continue to revisit this topic and I will address it in another blog at the appropriate time.

 

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AT YOUR (our) CONVENIENCE

The word “convenience” permeates across nearly all aspects of daily living as well as in business. Some people may argue that we exist in a “convenience” –dominated world. We do not have the time to study, work and pursue our leisure activities any more. We are in many cases, “time-poor” and anything that raises obstacles in terms of slowing us down, putting systems and procedures in our way and generally making things awkward for us can incite anger and frustration.

Organisations have had to respond by re-thinking how they engage with us.

In the context of retailing, I was reminded of the importance of “convenience” last week when I read an article in Retail Week called “What will convenience look like in 2017?

The reality is that retailers are constantly grappling with ways and means of delivering their business proposition as conveniently and as cost-effective as possibly.

Therein lies the rub in my view.

While they undoubtedly have to address the issue of convenience, it also represents an opportunity to potentially drive cost out of the system so that they can become “leaner and meaner” in relation to their engagements with the customer and in terms of their competitive profile. There is nothing wrong, per se, in reducing costs and becoming more efficient. It can be argued that in such circumstances, retailers can deliver an even more effective value proposition, create more loyal customers and generate more profit in the process.

However there is a tipping point where continued “convenience-related” improvements can begin to work against the shopper and in favour of the retailer.

For instance as we discussed in a previous blog, self-regulated check-outs eliminate the need for store personnel to staff the tills and deal with payments. This can generate savings to the organisation in terms of less staff. However it can upset many customers such as those that are “technophobes” and older and potentially more vulnerable people. It forces the shoppers to perform a task that was previously delivered by the retailer. This can work in the shopper’s favour of course if it speeds up the process and means that they can exit the store more quickly. In many cases it does not achieve this objective. Shoppers take longer to figure out how to start the electronic process on the machine, find it difficult to insert the required notes, coins or banking cards, call over the one retail assistant who may (or may not) be nearby, antagonise shoppers in the queue and generally screw up the system.

Of course it can be argued that such innovations take time for shoppers to adapt and over time, such problems will disappear as they become more familiar with such technology.

Harking back to my earlier observation about the article in Retail Week, what are the main conclusions that it makes?

Firstly it reinforces the often-made point that the traditional late opening hours associated with the corner shop have disappeared and morphed into many retail formats such as supermarkets.

Convenience also extends well beyond opening hours and covers critical issues such as the preferences from shoppers for specific forms of delivery: in terms of both speed and the location of the actual delivery.

The article notes that “customers today are disappointed if the fastest you can deliver something to them is 24 hours”. This highlights the increased expectations of shoppers in many instances.

It is estimated also that in the context of the UK market, 80 per cent of shoppers regard a five-minute queuing experience as being unacceptable – again recognising the changing demands expressed by shoppers.

Such attitudes as these have forced retailers to reconsider the role that the outlet or retail store plays in the shopping process.

A recent study by Retail Week (Smarter Checkouts in a Digital World: 2016) examines some of the responses currently being implemented in order to address the specific aspect of managing convenience in a way that benefits the shopper.

In this context it highlights innovations such as the following:

  • Customer-facing screens
  • Digital receipts
  • Contactless payments
  • Mobile tills

Specifically in the context of contactless payments, Sainsbury’s hopes to have the system up and running in all of its convenience stores by Christmas 2016.

The move by the “Big Four” UK supermarkets into the convenience store space is not without its problems however. One problem is the danger of cannibalising sales across its other more traditional larger formats.

Interestingly and from a consumer behaviour perspective, commentators note that since around 2008 (the start of the global recession in general and the UK downturn in particular) shoppers, the concept of “repetitive top-up shopping” has risen exponentially. This has occurred at the expense of the traditional “big weekly shop” that has been the favoured approach of many households in the UK.

The increase of convenience store openings by the “Big Four” supermarkets at the expense of larger formats also threatens to undermine their overall profitability. For instance it is estimated that it can take up to fifteen stores to generate the same level of sales as a large supermarket format.

The fact that the convenience store format typically stocks only around ten per cent of items that feature in the full-line store.

Thus it can be argued that in the quest to address convenience, such tactics have changed the behaviour of shoppers for the worse (from the perspective and performance of the retailers).

The repetitive top-up shopping also arguably has conditioned shoppers to engage more fully in comparison shopping. This has worked in favour of the shopper in my opinion. In the period since the recession, shoppers (in many cases due to declining real income) have become more value conscious in general and price aware in particular. They are more knowledgeable and more proactive in terms of their engagement and interaction with retailers.

Comparison shopping has forced the large retailers to “up their game” in terms of offering more relevant and competitive promotions and introducing innovative practices that address the issue of convenience.

The above observations identify areas where the shopper has arguably benefited from the focus on convenience.

Those innovations that are based on technology in my view have yet to take effect and resonate with shoppers. This takes me back to my observation about the “tipping point” phenomenon. Shoppers have to become familiar and comfortable with aspects such as contactless payment and electronic receipts and self-administered tills.

Wearing my “shopper” hat, I continue to be frustrated and angry when asked to engage with these remote and featureless tools. I prefer to hand my money over to a sales assistant as opposed to inserting, typing and interacting with technology.

Wearing my retail marketing outfit however I recognise the potential benefits that can accrue to retailers in the form of improved efficiency and reduced costs.

It is the inevitable way of the future and as shoppers we will simply have to put up with it.