Case Study

Instant gratification: UPS

4 pages
December 2013
Reference: IMD-7-1510

In 2012 e-commerce in the US totaled $225.5 billion, a 713% increase from the $27.8 billion in 2000. Online purchases were projected to nearly double by 2017 and reach $434 billion. Ultimately, e-commerce depended on a few key factors, the most important of which was same-day delivery. In-store buying still accounted for $4.134 trillion, or 94.8% of total retail sales in the US in 2012. The primary reasons for this preference were the ability to touch and feel the products, to try before buying, and to gain the instant gratification of walking out with the purchase. However, in-store shopping had disadvantages: it cost time and money to go to the store, there was the risk that the required item would not be in stock, there was possibility of only a limited selection, and the risk that the store did not offer the best price. The benefits and risks of online shopping were nearly the mirror image. It was not possible to touch or try products in advance and if an item didn’t fit or work, there was the hassle of returning it. Even if everything went well, customers had to forfeit the instant gratification of getting their purchases straight away and wait a day or more for delivery. Given the size of the potential market, e-commerce retailers increasingly sought to provide consumers with hassle-free returns and same-day delivery. Success in doing so had the potential to propel sales beyond the projected $434 billion in 2017 to $500 billion, $750 billion or even more. Retailing had greatly evolved in the US from the early pioneering days of individual shops to department stores to mass discounters and category killers. E-commerce was the latest iteration but its further success involved more than just low pricing. For it to expand to more than 10% of total retail spending, return convenience and same-day delivery were likely required and the logistics required for this were non-trivial. How should Amazon, Walmart, Google, UPS and FedEx approach same-day delivery?

Learning Objective

This note explores the evolution of retail in the US and asks students to consider the positions of Amazon, Walmart, Google, UPS and FedEx, to determine their strategy for approaching same-day delivery, including what changes to their business operating model, investments, structure, consumer value proposition, and infrastructure they will need to offer such a service. Supplementary information on each company is provided.

Keywords
eCommerce, Retail, Logistics
Settings
Global, United States of America
United Parcel Service, Logistics and Supply Chain, Logistics and Supply Chain, Courier
2012-2013
Type
Published Sources
Copyright
© 2013
Available Languages
English
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