Signed, sealed... not delivered?

With online sales remaining healthy despite recession, can enhancing the delivery experience actually add to a retailer brand?

UK online retail sales have shown continued growth despite the recession, with consistently high growth levels throughout the first half of 2010, according to IMRG Capgemini's e-Retail Sales Index ('IMRG'). This growth continued with sales up by 15% in August compared to the same month last year.

Given this ongoing trend, retailers should consider how they can enhance their brand and revenue by improving their delivery experience.  

What are the options?

Increasingly retailers have looked to outsource some or all of the online sales processes, in particular the haulage and delivery aspects.

Outsourcing has its obvious benefits; it can reduce costs and retailers can benefit from the service provider's expertise in the online sector - increasing customer satisfaction and brand value.

Alternatively, improvements in technology, such as optimisation software, are providing retailers and their courier contractors with the ability to vastly improve delivery times. Also, many carriers now offer 'track-and-trace' facilities which allow customers and retailers to track parcels in real time from warehouse to the delivery point. 

What might the benefits be?

Delayed or failed deliveries have an obvious detrimental effect on customer experience and satisfaction and consequently the retailer's brand.

IMRG estimate that failed deliveries cost the industry at least £787 million every year (Valuing Home Delivery Review 2010).

The retail sector has seen significant convergence between bricks-and-mortar and online business with the development of collect and return services. Many high street retailers already have a converged offering whereby customers can opt to collect their products in-store or return items bought online to their nearest store.

For example, earlier this year, the online fashion retailer, ASOS, announced that it was seeking delivery partners and is now set to partner with Boots.

The retail trend seems to have been established and will gain momentum as more retailers seek to enhance their brand and profits through enhancing the delivery experience.

Key issues

Managing service performance

Clearly it is essential that retailers choose their service providers carefully and opt for those with sector experience. This is vital as, depending on the nature of the services that are outsourced, the retailer may lose direct control over the customer experience.

From a contractual perspective, agreements with service providers should contain a clear description of the services. Most disputes arise over the precise nature of services that were to be carried out.

A clear service description should be coupled with detailed service levels and support and maintenance obligations with respect to any systems to be used by the retailer in relation to the outsourced service. Service levels set the threshold of what is "good enough" and service credits encourage performance above these levels by acting as a credit against the contract price if the service falls below the required threshold. 

Service levels can sometimes appear attractive initially, when in reality they do not achieve the desired standards. For instance, a service provider may guarantee 99% availability of their 'track and trace' system but this could still mean that a website is down for 87 hours in any year. Retailers should analyse the cost of higher service availability against the relative benefit to the business and find the appropriate balance for their needs.
 
The service level profile should also be flexible to match the seasonal needs of a business. For instance, a business may wish to invest in higher service levels during key selling periods, particularly in the run-up to Christmas.

Intellectual Property, Data Protection and key contractual considerations

Arrangements with service providers will usually involve use of key intellectual property and access to valuable customer data, including personal data. The contract must contain provisions protecting and asserting the retailer's ownership of these valuable assets as well as ensuring that customers' personal data is protected in line with data protection legislation.

A contract should deal specifically with the development or implementation phases of any project. The contractual documentation should include a detailed implementation plan identifying key milestone/contractual dates against which the supplier is to submit 'deliverables' for acceptance testing.  The retailer can manage risk by ensuring the systems and services are fit for purpose before they are put into live operation.

The contract should also be sufficiently flexible to allow for change in the retailer's business. For example, the contract should allow for expansion in the retailer's business in terms of product, volume of business and geographical reach.  A clear contractual change control procedure should also be included to set out a process under which the retailer can request other changes to the contractual arrangements.

Finally, the provisions of a contract should look ahead and include exit arrangements which are triggered on termination or expiry of the agreement.  These provisions help to ensure that there is stability during the "cut-over" to any new systems and services and to ensure business continuity for the retailer. 

So, is seeking to enhance the delivery experience worth the effort?

Goodwill and reputation is established and grown through a successful retail experience and, if the retailer is not careful, what might look like a good business proposal, either outsourcing or investment in new technology, may in fact cause severe damage to the retailer's brand and reputation in the market place if the projects lead to lack of delivery as opposed to an enhanced delivery experience.

This article was written by Tom Torker, a solicitor in the Technology, Media and Communications Team at Michelmores. For further information on the issues raised, please contact Tom at tom.torkar@michelmores.com