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Journal of Accounting & Marketing
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Marketing Consumer Product Goods in a Shifting Supply Chain Environment: Same-Day Delivery and Future Drone Delivery

Fadye Saud Alfayad*

College Deputy, Jubail Industrial College, Management and Information Technology, PO Box 10099, Jubail Industrial City, 31961, Saudi Arabia

*Corresponding Author:
Fadye Saud Alfayad
Assistant Professor, College Deputy, Jubail Industrial College
Management and Information Technology
p.o.box 10099, Jubail Industrial City
31961, Saudi Arabia
Tel: +966 13 340 2000
E-mail: fayad_s@hotmail.com

Received Date: January 15, 2017; Accepted Date: January 23, 2017; Published Date: January 30, 2017

Citation: Alfayad FS (2017) Marketing Consumer Product Goods in a Shifting Supply Chain Environment: Same-Day Delivery and Future Drone Delivery. J Account Mark 6: 211. doi:10.4172/2168-9601.1000211

Copyright: © 2017 Alfayad FS. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

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Abstract

This report has worked to characterize the way in which the contemporary retail environment is privileging the omnichannel supply chain for consumer product goods (CPG) retailers. The most accepted supply chain configurations such as multi-channel supply chains all integrate the established use of distribution centers and hub configurations in the logistics field. However, as this report indicates, CPG retailers are developing more emergent supply chain configurations that integrate different modalities. Furthermore, these modalities are extending the supply chain directly to the consumer’s front door. These developing supply chain configurations for CPG retailers are referred to as omnichannel supply chains and they depend upon both in-house and 3rd party providers to institute same-day and next-day delivery services. Also, some major retailers such as Amazon are developing drone delivery modalities and technology companies like Google are not far behind. The report finds that such efforts are designed to respond to emerging consumer behaviors and purchase patterns such as showrooming . Therefore, CPG retailers must now identify ways in which their marketing initiatives respond to these emergent omnichannel attributes. These marketing initiatives must be able to integrate considerations made for how products might be packaged, product design factors such as weight and form, and also messaging elements that are directed at the consumer. Consumer messaging in particular must reflect the purchase-advantages gained by the omnichannel for the consumer such as convenience, free-shipping when offered and originality or first-mover status of the delivery modality. This report’s findings suggest that all of these types of factors affect not necessarily whether or not a CPG retailer chooses implement an omnichannel distribution configuration but whether or not the CPG retailer can afford not do so. This report makes the recommendation that CPG retailers that are intent on implementing an omnichannel supply chain and logistics technologies that integrate same-day/next-day delivery can enhance these outcomes through the marketing function. This can be accomplished by notifying the consumer of a delivery through the use of image or video confirmation of the CPG delivery and in the case of future drone deliveries, integration of satellite imagery and GPS mapping as a means to confirm the practicality of drone drop-offs at a targeted consumer residence.

Keywords

Consumer product goods; Omnichannel supply chains; Drone delivery

Introduction

The marketing of consumer product goods (CPG) is changing due to emerging delivery options and modes in the supply chain. These are emergent delivery solutions and logistical modes such as the same-day delivery service and the developing drone-based delivery models being proposed by retailers such as Amazon. Traditionally, marketing as a business function focused on fundamental elements such as pricing, product, placement and promotion while online marketing considered further elements including communication, community and commerce [1]. While all of these elements are still certainly useful, marketing within the context of contemporary CPG production, distribution and sales has become much more sophisticated in nature.

Consumers are consistently demanding immediate or nearimmediate fulfillment with respect to online purchases while onground retailers are integrating online retailing in order to meet their consumers’ demands. All of these developments have led to increasing pressures on the traditional retail supply chain and logistics networks such that “last mile” delivery modalities now populate both the retail supply chain and the marketing messaging of many retailers [2]. These issues involving such last-mile delivery modalities such as same-day/ next-day delivery services and emerging drone-based delivery services are examined in the context of the marketing function in this report. The result is that the supply chain for most CPG retailers has now expanded beyond the limitations of cross-channel retailing, multichannel retailing and similar multimodal supply chain models that all end at the retailer. Presently, CPG retailers, both on-ground and online, are attempting to develop modalities that extend to the supply chain directly to the consumer’s front door as it were which is framed in the context of the omnichannel.

Shifting Supply Chain

Traditional supply chain configurations are rapidly disappearing. Traditional supply chains being defined as those with fixed distribution points moving from a production facility, to distributor, to a retailer or a wholesaler and then finally to the consumer. Instead, the contemporary supply chain is one that now focuses on what is referred to as “all-channel fulfillment” in which a purchase by a consumer, whether in the retail location or online, results in CPG fulfillment from the most convenient supplier point available which includes in-store stock, direct from warehouse, direct from supplier or even customer pick-up at other locations [3]. This focus on all-channel fulfillment prioritizes the consumer while simultaneously allowing the retailer to lower cost, lower price and reduce inventories. The all-channel concept is essentially embodied in the concept of the omnichannel where product selection, delivery modality, delivery time, delivery area and product returns are all sutured together technologically and conceptually (Appendix 1). Hence, the omnichannel consists of multiple channels being fully integrated into the retailer’s delivery model such that inventories are moderated for it, marketing reflects these new capacities and the consumers are aware of them.

Same-Day/Next-Day Delivery Models

The logistics of managing same-day delivery is much simpler to manage than the marketing of same-day delivery. Same-day delivery services are now being offered by many, if not most, major retailers both on-ground and online. For instance, some writers observe that, “Macy’s…the department store chain now offers same-day delivery in eight markets, with plans to expand to more cities…” [4]. The point is that traditional retailers have had to ensure that they make many more CPGs available online through their websites in order to facilitate the showrooming phenomenon many consumers now prefer. In order to attract these consumers and placate their need for immediacy, sameday delivery is fast becoming an expected option.

Essentially, same-day and next-day delivery models within the supply chain are a key expression of the emerging omnichannel concept. The traditional distribution center logistics framework within retail simply does not work in the context of emerging consumer demand, fulfillment requirements and the omnichannel with its same-day/nextday integration demands. In fact, a fundamental reconceptualization of the distribution channel itself away from distribution centers to instore fulfillment is required:

Omni-channel fulfillment has evolved from a primarily DC-based model to one that leverages all inventory nodes across the network, especially the store. For same-day/next-day delivery being demanded by omni-channel, stores often provide the best fulfillment option for retailers [5].

In other words, same-day and next-day fulfillment of CPG purchases do not work well in the context of the traditional supply chain.

This requires that retailers who seek to market rapid fulfillment of CPGs to consumers must first invest in their supply chain and logistics operations. This is much more than merely using a 3rd party provider for the same-day/next-day delivery but requires system changes in the logistics design because the products still must be delivered to the carriers in an efficient manner. The omnichannel forces CPG retailers to rethink where inventories are held with retail outlets now seen as distribution centers in some respect. Retail outlets as distribution centers are key in the establishment of the last-mile extension of the supply chain from the retailer to the consumer’s front door.

Drone-Based Models

The concept of drone-based delivery first hit mainstream consciousness when Amazon announced it was developing a dronedelivery system. Amazon has historically been a first-mover with respect to technology systems and this initiative, while radical at first blush, is in line with Amazon’s technologically focused innovation. Amazon’s drone-delivery model is referred to by the company as Amazon PrimeAir and is a system designed to deliver packages to consumers in 30 minutes or less within urban areas served by the system. Rather than purchase a drone delivery platform off the shelf, the company’s research and development division designed a purposebuilt drone platform which is seen in the graphic below (Figure 1).

accounting-marketing-prime

Figure 1: Amazon prime air vehicle.

Although relying on established drone technology and design, Amazon’s drone delivery vehicle is bespoke to the company’s unique delivery requirements. As Amazon describes the system, drone delivery will, “deliver packages up to five pounds in 30 minutes or less using small drones. Flying under 400 feet and weighing less than 55 pounds, PrimeAir vehicles will take advantage of sophisticated ‘sense and avoid’ technology” [6]. The emphasis on drone delivery then is on speed of delivery, immediate gratification for the consumer and technology leadership in the retail space.

However, Amazon is not the only major technology driven firm that is developing drone-based delivery models for CPGs. Another potential entrant into the marketplace that has the financial and technological heft to be successful is Google. Google recently applied for a technology patent detailing a complex drone-based delivery system for CPGs: “The drone flies to a local delivery box that is equipped with infrared beacon transmitters that help guide the drone to close proximity. The drone would then place the package into the wheeled box…Customers would then receive a notification…” [7]. Fundamentally, this is a largely similar drone-based delivery system as Amazon’s. Yet, the business model behind it is remarkably different. Where Amazon’s drone-based delivery business model is a direct to consumer model, Google’s envisioned system is direct to warehouse then to consumer. Google’s drone-delivery system still retains a warehousing layer within the system although the time-to-delivery is reduced through the dronebased technology.

Despite the significant inroads into drone-based delivery models for CGPs made by major technology firms such as Amazon and Google, there are difficult impediments to fully executing on this strategy. The technology actually exists to enact this drone-based delivery system. But the largest impediment is the regulatory and the safety factors that are associated with drone technology and use. One company, Matternet, which is a drone manufacturing company, explains that, “technical hurdles including short battery life…U.S. regulators…prohibit drone flights beyond eyeshot of the operator if the devices lack collisionavoidance technology” [8] both place considerable constraints on full drone adoption by CPG firms. While Amazon and Google are both advocating US regulatory agencies to develop the regulatory policy relating to drone use, there is still substantial pushback against full implementation by regulators.

Marketing Adaptations

Retailers, both on-ground and online, have long attempted to enhance CPG delivery to the consumer. For on-ground retailers, this was a mandate necessary in order to expand retail services required to maintain sales in the face of online retailers. For online retailers, CPG delivery was an added expense that either the retailer or the consumer had to cover and added to the cost of goods sold (COGS). Therefore, many retailers in both formats began to sell and market their products with free shipping services either included outright or offered after a certain sale threshold was reached. Companies such as Amazon managed to achieve this free shipping threshold through sophisticated technology applications and strategies that utilized established delivery services. These are solutions like “postal injection” in which Amazon developed: “It also ramped up a system called ‘postal injection’ in which it uses prediction algorithms and complicated network analysis to figure out how to deliver every package to the United States postal facility nearest a customer’s house” [6]. These types of strategies enhance a retailer’s marketing strategy because the free shipping label on its CPG webpages woos consumers who otherwise might have purchased on-ground due to cost-avoidance.

The marketing adaptations for CPG retailers who implement solutions involving omnichannel logistics involve awareness of how the consumer perceives CPG delivery. Much of this awareness involves speed of delivery, the convenience factor as well as the gratification related to certain types (sizes) of products. The table below positions consumer experience within the omnichannel framework from a marketing perspective that can then be utilized to develop marketing collateral which informs the consumer of the retailers delivery capabilities (Table 1).

Cost Factor Performance
Inventory Higher than distributor storage with package carrier delivery
Transportation Very high cost given minimal scale economies. Higher that any other distribution option
Facilities and Handling Facility costs higher than manufacturer storage or distributor storage with package carrier delivery, but lowers than a chain of retail store.
Information Similar to distributor storage with package carrier delivery
Service Factor Performance
Response time Very quick. Same day to next day delivery
Product variety Somewhat less than distributor storage with package carrier delivery but larger than retail stores.
Product availability More expensive to provide availability than any other option except retail stores.
Customer experience Very good, particularly for bulky items.
Time to market Slightly higher than distributor storage with package carrier delivery.
Order traceability Less of an issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery.
Returnability Easer to implement than other options. Harder and more expensive than a retail network

Table 1: Omnichannel logistics and the consumer.

As the information in this table would indicate, consumers may experience higher level of gratification with alternative delivery modalities depending on the form factor of the CPGs they order. These types of considerations must be taken into account when formulating the marketing messaging that accompanies a CPG retailers marketing collateral.

Showrooming

The term showrooming has emerged in the sphere of CPG retailing over the past decade or so. Showrooming involves the use of an onground retailer as a kind of display store for products that can be found online by consumers interested in them. In effect, showrooming has been defined in the research in the following manner: “consumers using a retailer as a showroom to view products in-person before buying them from an online retailer” [9]. In this regard, consumers who are viewing and researching some CPG online are hesitant to make the purchase without fully knowing what it is like. Then, in order to resolve this dilemma, the consumer goes to a suitable on-ground retailer in order to touch, feel and utilize the CPG in advance of the online purchase. These types of consumers are noted for carrying their mobile devices directly into an on-ground, traditional retailer and, after investigating the product, making the purchase online while still in-store. These types of consumers have been termed “mobile-assisted shoppers” and are categorized into a series of five groups (Figure 2).

accounting-marketing-empowered

Figure 2: Types of mobile empowered shoppers.

As the figure above reveals, consumers engaged in showrooming come in all varieties. But, they are all united in their intent to make online purchases after investigating the CPG on-ground.

3rd Party Retailer to Door

The use of 3rd party providers to build out a retailer’s CPG distribution network is well-established. Retailers specialize in the marketing of CPGs rather than the actual transportation and delivery of CPGs. That is, retailers are not fleet vehicle operators or intermodal transportation specialists nor should they be. Instead, the current retail environment has witnessed the emergence of what are referred to as channel intermediaries which perform the following tasks [10]:

1. Placement utility: ensure that a CPG is delivered to a consumer in a convenient manner

2. Time-based utility: ensure that a CPG is received by the consumer when desired

3. Form-based utility: ensure that the CPG is in a form that is usable (no need to be assembled, etc…)

4. Knowledge utility: ensure that information about CPG use, quality, return and maintenance is on-hand.

Consequently, it is apparent that such channel intermediaries perform many of the traditional functions of supply chain participants. However, it is also evident that they also perform many of the services traditionally expected of the retailer and post-sales service providers as well.

Evolving Marketing Messages

Presently, it is difficult for major CPG retailers such as Amazon and Wal-Mart to fully benefit, marketing-wise, from emerging logistics channels such as drone-based delivery. Drone-based delivery offers a remarkable opportunity not only from the logistical perspective of the delivery channel direct-to-consumer but also from the marketing message itself. It seems fairly evident that, at least in the early stages of the model, consumers would be inclined to purchase CPGs just to experience the drone flight and delivery [11]. Benefiting from this type of consumer stimulus in the marketing message is currently difficult because of the regulatory barriers that exist. Drone-based delivery involves unmanned vehicles operating in what is highly regulated airspace above urban areas. The problem with adoption of this type of delivery channel is, as previously observed, not so much technological as it is regulatory: “government regulators have still not established a framework for unmanned drones to be integrated into the national airspace” [12]. Test markets may eventually be allowed but until then, the primary benefit of drone-based delivery models from a marketing perspective is the anticipatory nature of the service.

Social Media Channels

Social media has come to affect the retail environment in dramatic ways. Additionally, social media influences the retail environment from all perspectives including the consumer side, the retailer/wholesaler side, the producer side and finally from the logistics side. For instance, public social networks such as Facebook, LinkedIn and Twitter have all been integrated into some intra-company and intra-industry supply chains as a means to share critical information among relevant parties and nodes along the supply chain such as product warnings, recalls and supplier/vendor updates and so forth [13]. These public social media platforms provide a level of transparency and immediacy that is difficult to mimic in traditional IT infrastructures.

Furthermore, there are emerging social media channels that cater specifically to the supply chain and logistics industry such as Sourcemap. Sourcemap is an enterprise social network which supports conceptual mapping of supply chains that integrate not only 1st tier but also 2nd and 3rd tier suppliers/vendors, producers and manufacturers [14]. This conceptual mapping goes much further than merely building a graphical representation of a supply chain. Rather, Sourcemap and similar applications facilitates collaboration among the supply chain nodes, use of local language software, tutorial integration, real-time discussion, workflow management and live-messaging in addition to the graphical representation of the supply chain [14]. This type of enterprise social media application combined with public social media applications has led to the rapid open-sourcing of supply chain management away from the closed-source enterprise resource planning (ERP) platform.

Conclusions and Observations

This report attempts to characterize the way in which the contemporary retail environment is privileging the omnichannel supply chain. Traditional and even more recent supply chain configurations such as multi-channel supply chains all integrate the established use of distribution center and hub mentalities in the logistics field. However, as the research has indicated, CPG retailers are developing emergent supply chain configurations that integrate different modalities and are extending the supply chain directly to the consumer’s front door. These developing supply chain configurations are referred to as omnichannel supply chains and they depend upon both in-house and 3rd party providers to institute same-day and next-day delivery services for CPGs. Additionally, some major retailers such as Amazon are developing drone delivery modalities and technology companies like Google are not far behind. Of course, one of the major impediments to emergent delivery strategies like drone-based delivery lies not in the technology but rather in the regulatory policies that currently constrain its implementation.

Therefore, CPG retailers must now identify ways in which their marketing initiatives respond to the omnichannel attributes. These marketing initiatives involve considerations made for how products might be packaged, product designs in which considerations are made for weight and form factor, and finally messaging directed at the consumer. Consumer messaging in particular must reflect the purchase-advantages gained by the omnichannel for the consumer such as convenience, free-shipping when offered and originality or firstmover status of the delivery modality. In the end, all of these factors affect not necessarily whether or not a CPG retailer chooses to develop omnichannel distribution but whether or not the retailer benefits from it operationally and cost-wise. Thus, as developments in retailing continue to evolve like showrooming and social media integration, CPG retailers must identify ways in which the omnichannel supply chain can be integrated with these emergent consumer behaviors and shopping patterns. Showrooming in particular can be integrated into the concept of last-mile delivery by the CPG retailer which enhances the immediacy of purchases made in-store but when inventory is not onsite.

Recommendations

One recommendation for developing marketing messages for CPGs that reflect emerging supply chain and logistics developments relates to the delivery interaction itself. Many online and on-ground retailers do not give much thought to the actual moment of delivery of a CPG to a consumer who has purchased a product set for delivery. This moment of delivery is one that occurs regardless of the delivery mode be it sameday/ next-day delivery via traditional delivery modalities or emergent modalities via drone-based delivery. This moment of delivery actually provides a great deal of opportunity to strengthen the relationship with the consumer, lose the consumer’s trust or interfere with receipt of the CPG. This moment of delivery is described in the literature as one researcher discusses it in relation to the delivery of groceries: “Unattended home delivery enables grocers to deliver online orders regardless of whether the customer is at home or not. The shopping basket is placed in front of the customer’s home to be collected upon arrival” [15,16]. As this statement indicates, some consideration must be made by the CPG on if the consumer has to be home or not. Does the consumer need to sign for the package or, in the case of dronedelivery, does the consumer have to facilitate the drone’s landing or drop-off of the product in some fashion.

After all, if the CPG retailer enacts an inefficient omnichannel fulfillment strategy, it loses the marketing message benefit of the service. In essence, the convenience advantage marketed by the same-day/next-day and drone-based delivery modalities is lost if the consumer is inconvenienced by the methodology. Consequently, the recommendation is that firms intent on implementing omnichannel supply chain and logistics technologies enhance these solutions through both technological and policy means. Same-day and next-day delivery of CPGs has been in place for some time with some deliveries requiring signatures and others not. In the future, convenience can be enhanced by notifying the consumer of a delivery through the use of image or video confirmation of the delivery and in the case of future drone deliveries, integrating satellite imagery and GPS mapping in order to confirm the practicality of drone drop-offs at a given consumer residence. It is clear that some consumer residences simply cannot facilitate drone CPG delivery. For these consumers the marketing of same-day drone delivery would result in frustration as they discover at the point of purchase that this is not possible at their residences.

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