It is not very often a story about product distribution is a big story. In fact, this story is not only the biggest business story of the day, it seems to have captured a prize for being one of the biggest news story. By now, most people have heard about how Amazon is testing distribution using drone aircraft. The delivery drones would operate within a 10 mile radius of an Amazon distribution center and could fly an order that weighs up to five pounds and get it to the customer within 30 minutes. Amazon’s experimentation with improving product distribution is part of an e-commerce industry trend to reduce delivery time to enable customers to enjoy rapid product satisfaction in the same way store-based retailers can.
Certainly the futuristic nature of product delivery by “octocoper” is a fun concept. But what is a little unclear is whether this type of shipping mode can be more efficient than fielding a human delivery force. Sure the 30-minute delivery guarantee is a key selling point, but pizza shops have been doing that for years. Additionally, a human can deliver much more than five pounds.
But human delivery does not do well in congested areas. And as Amazon’s Jeff Bezos notes, this will be a prime target for this service. So apart from issues the FAA may have with hundreds of small flying machines, what may actually be the key to this concept is landing space. For this to work in cities, drones may need to maneuver and land in very tight spots, such as on the balcony of a high-rise apartment building. If that can be done, then drones may provide some distribution advantages.
If there is one thing to take away from this story it is not to underestimate what Amazon can do. It is a fair bet they will introduce this service, but it likely will not be part of a free shipping option. It is more realistic, given the supporting infrastructure required to deploy a drone delivery force, that Amazon will need to generate additional revenue either by charging a stiff delivery fee or offering it as part of a “membership” plan similar to their Amazon Prime service.
This time of year the loss leader pricing model is a critical pricing tactic utilized by retailers. As discussed in the Setting Price: Part 2 tutorial, loss leader pricing is a form of promotional pricing that principally is used to attract customers to retail stores. Under this approach, retailers intentionally sell products at prices that are below the cost they pay suppliers (e.g., manufacturers) for obtaining the product. In other words, they lose money on each item they sell. The idea is that, while they lose money on this product, they will easily recoup their loss by selling other products that are profitable.
While a useful pricing tactic, some U.S. states have viewed this as a form of predatory pricing, where the low price is not necessarily intended to attract customers, but is designed to drive competitors off the shelf, or possibly, out of business. One state that did not appreciate loss leader pricing is Oklahoma, which not only considered to be illegal but, back in the 1940s they also said retailers had to sell a product at a price that is 6 percent or more above its cost.
Now, this has changed. According to this story, after 72 years retailers are free to engage in loss leader pricing in the state of Oklahoma. At least for some products. There are still limitations when it comes to drugs, gasoline and groceries. Obviously for retailers, this comes just in time for their Black Friday specials.
It has been 18 years since Amazon.com sold its first book and, as a result, altered the face of retailing. Of course, they did not change things overnight. It took several years before they became a prominent retail player and several more before they reached dominating retailer status. If there is a lesson to be learned from Amazon, and many other online retailers, its that technology can change how business is done and how an industry evolves.
Of course, technology is not the only reason retailers have thrived or withered, but anymore it seems to be at the top of the list for what makes for retail success or failure.
This story from Forbes presents a nice summary of a few technologies retailers, both store-based and online-only, are now using to improve the customer experience, which is a key factor in retail success. Technologies discussed include: streamlined checkout, interactive product displays, and augmented reality mobile apps.
While the discussion of the impact of each technology is nicely presented, the story also offers detailed insights from retailing executives. The executives from store-based retailers Lowes and Ikea, and from online retailer Zappos, offers their take on how technology is being used, and the benefits they are experiencing.