Online grocers could use big data to predict when shoppers might want their weekly food shop delivered and boost their profits at the same time, according to new research.
Academics at Warwick Business School
, Lancaster University Management School
and the University of Southampton
have developed a new analytic approach to help retailers decide when it makes sense to offer incentives in order to encourage customers to shop at particular times.
The team used real shopping data from a major UK e-grocer over the course of six months to test the new approach of predicting when people would want to have their shopping dropped off if they were offered incentives such as cheaper delivery charges or loyalty points. The simulation, which took into account orders already booked in as well as those expected to come in, resulted in a theoretical 4% increase in profits. Arne Strauss
, assistant professor of operational research at Warwick Business School, was a member of the research team. He said: “Traditionally, online retailers would collect orders including delivery time requests until a certain cut-off time and plan their delivery schedule accordingly. Therefore, maximising profits is a problem because the final set of orders for a given delivery day are not know until shortly beforehand, yet decisions on the pricing of delivery time slots have to be made in advance, based on an estimate.
“With our new approach we demonstrate that analysing the customer data which is already at retailers’ fingertips and using it to predict the impact of future expected orders in the estimation of delivery costs produces higher profits than only using orders accepted to date in this estimation.”
Strauss said the model could outperform static two-tier pricing policies by around 4%, “significant” potential when margins are narrow. He also suggests that online retailers nudge customers into the most profitable delivery times. The team argues that such analysis, combined with route optimisation software and more accurate customer targeting could also improve the environment, since it would make delivery operations more efficient and delivery vans would use less fuel.
“It is important to incentivise customers and steer them to particular delivery times,” said Strauss. “This could be in the form of points or vouchers or even something along the lines of asking customers to consider the environmental impact. If they are not being given incentives when it comes to requesting their delivery times, then this can have a large impact on route planning and efficiency for the delivery team.”
The full research paper, Choice Based Management and Vehicle Routing in E-fulfilment can be found here