“The Post Office of any country has a Corporate Social Responsibility to be its country’s engine of sustainable economic growth by promoting commerce, small and medium business growth, providing services that people need”

In the Age of Disruptive Innovation – Do You Simply Compete on Lowest Cost?

Frank Cianciullo and Martin Sarch

Leapfrog Business Consulting

Introduction

We live in an age of unprecedented and accelerated change. Trends are short. Trend Analysis is useless. The economy is global. Posts have to look at the large paradigm-shifting forces that are reshaping the world every day in every way.

Parcel delivery has become a “commodity”,increasingly executed through crowdsourcing. Competition is fierce. E-Commerce and parcel growth gave new life to the dying postal industry but Posts are now faced with a crisis of purpose.

Major Posts jumped on the opportunity to deliver parcels for major e-retailers. They needed to fill capacity, achieveeconomies of scale andoffset fixed infrastructure costs.

Many Posts chose the Cost-Leadership route. They discounted their prices and waived requirements (i.e. cubing) to get the business, even though such preferential treatment could be illegal. It disenfranchised consumers and reduced the ability of small and medium businesses (SMEs) to compete. High margins from consumer and SME rates kept these Posts afloat. Other Posts chose a Benefit-Leadership (Differentiation) Strategy.

 

Technological Innovation and Globalization Is Happening at an Accelerating Speed

A bullet train speeds by Hamamatsucho Station in Tokyo, Japan

Technology, globalization and their multiple innovation disruptors have had a dizzying effect over the last 10 years.

We live in a world that is now interconnected on multiple levels. Three billion of the world’s 7.6 billion population is connected to the Internetand 2 billion are interconnected through Facebook.People, machines and businesses worldwide are transacting and collaborating on a 24/7 basis.

 

 

Low-cost smartphones changed everything. Approximately 75% (2018) of the world’s population uses a mobile phone. Thirty five percent (35%) or 2.6B have smartphones[1]and 4.3 million (2017) more smartphones are activated every day[2]. Sixty percent (60%) of people worldwide browse the Internet and buy online via a mobile.[3]

This digital revolution enabled access to markets, information, financial services and business opportunities. It created unprecedented opportunities for Micro, Small and Medium Enterprises (MSMEs) In emerging markets it facilitated money transfers, created jobs and increased wages.

One in ten Africans, 100 million people, use mobile money and more than half of the 282 mobile money services operating worldwide are in Sub-Saharan Africa.[4]With increased financial inclusion, there will be a significant reduction in the 2.5 billion unbanked adults and an improvement in quality of life.

The Greatest Impact Has Been in The East

Nowhere has the smartphone had more impact than in China, South-East Asia and the developing world. The current middleclass in China is 300 million people (out of 1.4 billion) nearly equal to the population of the US. In 10 years, the middle-class in China is expected to almost double to over 525 million.[5]

In China, online shopping is mainstream. China’s Singles Day 2017 yielded $25.3 billion in sales in 24 hours, up 39% year-over-year. In the US, Thanksgiving Day online sales totaled only $2.9 billion, up 18% from 2016. Black Friday online sales totaled only $5 billion, up 16.9% from 2016.[6]

The combined economic and political power of China, India, Japan, Indonesia and South Korea will soon surpass that of Europe and the United States. The growing middle class in China and the ASEAN countries is the engine of the economic growth that will be a great consumer of “worldwide” goods.

The “New Retail” Ecosystem is Changing Everything

E-retailer Alibaba in China has been the precursor or trendsetter. In 2016, Alibaba’s[7]Jack Ma coined the term “New Retail” as the integration of online, offline, logistics and data across a single value chain to create up-sale opportunities.

E-retailers are now using at least 12 identifiable strategies to increase sales, expedite delivery and lower costs. These strategies are shaping global ecosystems and marginalizing the postal industry at an accelerating speed.

 

1) Control Mobile Money Payment:According to Fung Global Reach and Tech, “E-wallets account for a 58% share of the mobile payment market in China, the highest percentage globally, indicating that mobile payments (WeChat Payment and Alipay) are an integral part of the Chinese shopping experience. In the US, the figure is just 15% and, in the UK, it is 23%.”

2) Buy Logistics:E-retailers built on their existing business model by partnering with or investing in Posts to accesswarehouses, processing centers and delivery resources.Alibaba bought a 14.4% stake in Singapore Post and a 34% stake in SingPost’s logistics subsidiary Quantium Solutions International (“QSI”).[8]E-retailers also bought delivery companies and invested in their own logistics companies.

3) Integrate Virtual and Physical Retail:Undifferentiatedretailers and department store chains consolidated and many closed stores (Macy’s, Sears, American Eagle Outfitters, JCPenney, Toys”R”Us, etc.). Malls closed or lost their anchor. The women’s apparel and teen categories were hit hard. Five US retailers declared bankruptcy in 2015 and 2016[9]and nineteen more filed in 2017.[10]Last year, there were 921 store closures by major UK chains.[11]

Yet, e-retailers aggressively moved forward with acquisitions, joint ventures and partnerships in the same physical space. Alibaba opened 56 New Retail grocery stores under the name of HEMA and opened Home Times,[12]IKEA-like stores. Amazon tried Amazon Fresh – grocery delivery and bought Whole Foods Market.

4) Expansion of Cloud Computing Service:Alibaba Cloud now offers services on a pay-as-you-go basis. It includes data storage, relational databases, big-data processing and more.Alibaba also brought its cloud-computing technology to China’s 6 million mom-and-pop convenience stores. Its retail-management integrated platform (Ling Shou Tong) allows storekeepers to use the Alibaba app to order product directly from Alibaba’s warehouses, manage sales, optimize product procurement and increase sales via suggested new products.

5) Digitize and Omnichannel:E-retailers digitized the offline retail world to give customers a personalized omnichannel experience. The Alibaba Cloud, use of predictive AI and mobile technologies have blended e-commerce with traditional retail. Buying things is more convenient, efficient and entertaining.

6) Use Data to Increase Sales:The pooled database facilitates predictive analytics and suggestive selling. Fashion AI applications recognizes items in the store’s inventory and suggest outfit matches to incoming customers based on their past preferences and online purchases.

7) Use Apps and Social-Media:Apps and social media recommend products. Consumers place high importance on brand recommendations made by people they know.

8) Make Shopping Entertaining:China’s 11.11 sales events are pure retail-tainment. You can buy what you see on the TV runway in real time and you can engage in games in real time on your mobile.

9) Place Inventory Closer to the Customer:Physical stores double as fulfillment centers. Customers can pick-up in-store or have it delivered from the store or local warehouse. Product is closer to the customer and delivery time is decreased. AI determines stock for specific stores based on data.

10) Ensure End-to-end Visibility: Customers want end-to-end parcel tracking and temperature tracking for sensitive items. Intelligent probes and monitoring devices for pharmaceuticals, frozen foods and other temperature sensitive products send information back to the Cloud

11) Improve Delivery Experience:E-retailers are involved in dynamic GPS systems, traffic management systems and Apps that enable crowdsourcing and optimize delivery of parcels using a smartphone.

12) Use Lower Cost Delivery Methods: Faster delivery means crowdsourcing, short hauls, autonomous vehicles and small vehicles with fewer parcels.

What is the Proper Response for Posts?

This question is not new. Debates about the Posts providing public service or being “commercially” oriented have been raging for years.

What is new is the emerging global reality that businesses today are increasingly engaging in Corporate Social Responsibility. From St. Louis Park in Minnesota, USA[13]to the city-state of Singapore[14], businesses are working with government, universities, unions and communities to solve complex, global challenges like unemployment, retraining, life-long learning, robotization, climate change, poverty and inequality.

Correspondingly, there is a growing consensus that the Post of any country also has a Corporate Social Responsibility to be its country’s engine of sustainable economic growth by promoting commerce, small and medium business growth, providing services that people need and implementing their government’s socio-economic programs.

Everyone recognizes that the real battleground for e-retail is in last-mile delivery. E-retailers determined that consumers want their product in hours versus days and they want free delivery.

Faced with the reality that Posts must assimilate into the New Retail ecosystem or dwindle and become irrelevant. The real question is how can Posts exercise their Corporate Social Responsibility while financially winning in the battle for last mile delivery?

Posts and Cost Leadership Strategy

Thriving in a Fast-Changing World Depends on Strategy.

Only companies, such as Wal-Mart, with a clear advantage of size, economy of scale, efficiency or technology focus on a Cost Leadership Strategy.

Creative companies focus on a Benefits Leadership or Differentiation Strategy that creates a product of service that is perceived to be unique throughout the industry. This strategy tends to create strong brand loyalty among customers. That perception can justify a higher price. For examples, just look at companies like Apple, Mercedes Benz and Whole Foods Market.

Posts around the world resorted to giving discounts or logistics benefits to large e-retailers to offset declining volumes of mail and to achieve capacity and economies of scale. They are dramatically changing the competitive-business, playing field. This preferential business practice may very well constitute unfair price discrimination, under anti-trust laws such as the USA’s Robinson-Patman Act.

Moreover, such pricing differences may also violate Postal Act principles of Universal Service Offerings that require Posts to provide “uniform pricing.”   Posts may very well make next to no profit on these large e-retailers and make all their profit on full-rate parcels shipped by consumers and SMEs.

Small Businesses are the backbone of any country. They generally employ over 60% of the people and create some 75% of the new jobs.

Governments all have oversight responsibility for Posts, but it is often not exercised it these cases. Governments that are sincere in growing SMEs and jobs should direct Posts to peg the shipping cost of a parcel at its exact handling costs, without profit. Those rates should be affordable, fair, reasonable and consistent for all. This would go a long way in promoting sustainable economic development because it would grow exports from SMEs and create jobs.

Posts and Benefit Leadership Strategy

Other Posts are highlighting the uniqueness of their social-service brand and differentiated service – different from and more attractive than those of their competitors – secure, efficient, traceable in real time and very fast.

They know that their extensive network, brand and level of service have value and they will not “drastically discount” parcel rates. They are prepared to “partner” and collaborate but not be used as a “commodity service supplier”.

Look at other Posts that follow this strategy.

Singapore Post and Alibaba are collaborating in the eCommerce logistics network QSI joint venture operating in 11 markets, providing warehousing, fulfilment and last mile delivery.[15]Singapore Post is also testing short-haul, electric vehicles for fast urban deliveries.[16]

Australia Post has set up storefronts on Alibaba’s key websites tohelp SMEs access 560 million consumers in six countries throughout China and South-East Asia. Australia Post also plans to open more storefront pages on other sites in Vietnam, Thailand and the Philippines.

The advances of 3D printing have the power to disrupt global supply chains and have shifted long-wait time due to long-distance transportation to fast last-mile production and shipping. Several Posts (LaPoste, Royal Mail, Swiss Post, Singapore Post) are preparing to offer such services.

Conclusion: 5 Tips Toward a Benefit Leadership Strategy

  1. Smart Posts are becoming more agile, leaner, smaller, more business-like, more organizationally condensed and competitive in culture.
  2. They are seamlessly assimilating the incoming and delivery data within the e-retailers cloud.
  3. They are becoming receiver-centric focused on the receiver-experience.
  4. They are laser-focused on speed of delivery and using shorter routes with electric-vehicle delivery and dynamic-route optimization.
  5. These Posts are also lowering delivery costs via franchises and agencies where business managers understand the monetary value of the foot-traffic coming to pick up their parcels.

[1]https://www.statista.com/statistics/203734/global-smartphone-penetration-per-capita-since-2005/

[2]https://www.statista.com/statistics/263437/global-smartphone-sales-to-end-users-since-2007/

[3]http://www.pewinternet.org/2011/07/11/smartphones-as-an-internet-appliance/

[4]http://www.cnn.com/2017/02/21/africa/mpesa-10th-anniversary/index.html

[5]https://www.youtube.com/watch?v=tR8JE2RWiSw

[6]https://www.fungglobalretailtech.com

[7]https://www.chinainternetwatch.com/7695/alibaba-group/

[8]https://www.singpost.com/about-us/news-releases/singpost-strengthens-collaboration-alibaba-ecommerce-logistics

[9]https://www.fungglobalretailtech.com/research/17-retail-trends-2017/?mc_cid=694d700d79&mc_eid=660cdd7ba4

[10]https://www.cnbc.com/2017/09/23/here-are-the-retailers-that-filed-for-bankruptcy-protection-in-2017.html

[11]https://www.fungglobalretailtech.com/research/analyst-opinion-lack-differentiation-structural-driver-behind-new-wave-uk-retailer-woes/?ct=t(DAILY_FEED_SEP_1_20169_1_2016)&mc_cid=b3f6499e63&mc_eid=660cdd7ba4

[12]http://www.alizila.com/home-times-furniture-store/

[13]http://www.startribune.com/globe-trotting-columnist-thomas-friedman-finds-lessons-at-home-in-st-louis-park/406120426/

[14]https://www.gov.sg/microsites/future-economy/about-us/about-the-future-economy-council

[15]https://www.singpost.com/about-us/news-releases/singpost-strengthens-collaboration-alibaba-ecommerce-logistics

[16]https://www.singpost.com/about-us/news-releases/singpost-and-tumcreate-launch-trial-electric-vehicle-mail-delivery