BOL — How to Deliver on Customer Promises and Be Profitable

Abstract

Way back when, everybody wanted to be faster and cheaper: an order had to be ready for shipment within 24 hours, the product more economical than in stationary trade — without additional handling or mailing charges, of course. In those times the common belief was that an e-commerce business could be operated at far lower costs than a chain of department stores, and the absence of regional and market limits would permit such rapid growth that logistics costs per order would be negligible. Meanwhile, two facts have become clear (or clearer): The first: much more than anything else (price, image, or depth of offering) e-commerce customers appreciate promises that are kept. As an A.T. Kearney study of November 2000 revealed, delivery reliability is the key to customer loyalty. This insight is all the more significant as bad experiences are passed on seven times more than good ones. In other words: one mistake in the logistics process must be offset by seven perfectly kept customer promises — just to be able to keep current customers. A comparison among BOL’s businesses in different countries revealed a clear correlation between fulfillment rates and the marketing costs per new customer. Therefore, new e-commerce businesses should first examine how well they can deliver on their customer promises — before even spending the first Euro on marketing. The second: logistics costs must be earned back through customer sales. It is not recommendable long-term to postpone the issue by exaggerating customer promises. Logistics costs are variable and directly attributable to orders — either they can be financed out of the profit margin, as all other costs, or they must be passed on to the customer as shipment and handling charges. Put in simple terms, this means: ‘faster and cheaper’ is feasible only as long as the company has other revenue sources. For a while many e-commerce shops thought they had found those sources at the stock exchange. After the New Market crash they now need to revisit a basic principle of business: “you can’t offer what you can’t afford.”