Online Retailers Undervalue the Brand Equity of Green Delivery Options

by Josué C. Velázquez Martínez and Ken Cottrill

As Amazon’s recently launched Climate Pledge Friendly program underlines, giving consumers opportunities to make green purchases can differentiate a brand and burnish its reputation as a sustainable retailer.

However, our research shows that online sellers — including Amazon — do not realize the full potential of green purchasing options. With the right messaging and supporting logistics systems, these retailers can provide sustainable buying choices that bolster their brands and lower logistics costs.

The power of the right sustainability messaging

The Climate Pledge Friendly program presents a special label to consumers when searching for more than 25,000 products on Amazon’s site. The label signifies that the products have earned one or more of 19 sustainability certifications created by the online giant.

Another approach to helping virtual buyers make greener purchasing choices is providing more delivery options at the point of sale. The arms race among leading e-commerce retailers to offer ever-faster delivery is environmentally harmful. As delivery times are reduced to one-day and same-day windows, it becomes increasingly challenging to consolidate packages and the number of addresses on delivery routes. Less consolidation translates into larger carbon footprints.

Sellers argue that they are merely meeting customer demand for faster deliveries regardless of the environmental cost — but is this the case? To find out, we conducted research in collaboration with Coppel, one of Mexico’s leading retailers with some 1,400 stores across the country and outreach of 45,000 home deliveries per day.

The project looked at how information on buying decisions’ environmental impact affects consumers’ willingness to wait longer for home deliveries. We also explored the effectiveness of different types of information on buyers’ willingness to wait and how key personal descriptors such as age, education, and socioeconomic status affect that decision.

We studied some 3,000 home deliveries carried out by 159 vehicles across 10 regions of Mexico. The research also included about 1,000 customer surveys. Women classified as housewives with relatively low socioeconomic status represented the largest group of respondents.

Our findings fly in the face of accepted wisdom. Seventy percent of the consumers surveyed were willing to delay home deliveries by approximately five days if given an environmental incentive to do so at the time of purchase.

Crucially, their propensity to wait was heavily influenced by the way this incentive was presented. By far, the most powerful way to frame the message was specifying how such an action would save many trees: In other words, how many trees are required to offset the amount of carbon emissions released to the atmosphere due to ordering fast shipping. For example, the probability that respondents would be willing to wait was around 90% when offered the “trees” option, compared to less than 40% when the choice was reduced carbon emissions — a popular incentive used by e-commerce sellers.

Another common assumption is that relatively affluent, highly educated individuals are more likely to choose green buying options online. The second phase of our research challenges this belief. We found that the willingness to wait and the effectiveness of the “trees” option were about the same for people in high- and low-status socioeconomic groups. Also, when the “trees” information is presented at the point of purchase, both men and women tended to choose green deliveries.

Unlocking the postponement potential

But providing a “green button” that online buyers can choose to delay home deliveries is not enough. The seller’s logistics network must deliver on this green promise while meeting customers’ deadlines who still expect fast delivery.

The key is postponement: using the flexibility gained from extended delivery windows to postpone specific packages. Such a flexible distribution system decides which packages need to be delivered today, tomorrow, or a few days from now, according to different customers’ preferences. The system uses this information, combined with the expected demand and distance traveled in each region, to maximize load density on trucks and minimize the number of stops while meeting acceptable service targets.

The MIT Sustainable Logistics Initiative team built a model to support such a system using data on Coppel’s last-mile deliveries in the Monterrey, Culiacan, and Azcapotzalco regions of Mexico from August 2018 to September 2019. We analyzed approximately 7 million records from 20 regional DCs and looked at factors such as the number of stops in each cluster or region, and developed an algorithm for delivering packages.

The model was field-tested in February and March this year in a pilot study. The pilot ran over 34 business days across some 700 zip codes served by Coppel’s Azcapotzalco DC. Consumers in the test area were given the green button option of delaying home deliveries by four days.

The results are compelling. In addition to supporting a multi-window distribution system, the algorithm reduced the distance traveled by delivery trucks and transportation time by 46% and 43%, respectively, compared to Coppel’s existing system. The number of vehicles required was reduced by 57%, and the drop size improved by 126%. The new model also delivered labor (22%), fuel (39%), and fleet (57%) cost savings. Total costs declined by 29%.

Green a distinguishing feature of delivery services

A challenge highlighted by the research is that to give consumers multiple delivery deadline choices, e-commerce companies need to change the way they manage their freight networks. For example, current transportation management systems (TMS) — the specialized software companies use to analyze and manage goods movements — cannot handle the algorithm we developed that underpins a multi-window delivery service. Coppel is reconfiguring its TMS as part of a project to implement a green button delivery system based on the new algorithm.

A strategic lesson from the research is that a green button last-mile strategy could enable e-commerce retailers to compete more effectively with market behemoths such as Amazon. Our research shows that given the right choices, many consumers will opt for green deliveries, and such a brand-enhancing offering could differentiate e-commerce retailers in an intensely competitive marketplace.

Improving competitiveness in the online world has never been more important, given the dramatic growth in online order volumes.

Dr. Josué C. Velázquez Martínez is Director of the MIT Sustainable Logistics Initiative. Ken Cottrill is Editorial Director at the MIT Center for Transportation & Logistics. The results of the first project (“green button”) described in this article are part of a research project done in collaboration with Karla Gamez-Perez and Jan Fransoo. The second-stage research (“postponement potential”) was done in collaboration with Andres Muñoz-Villamizar and Sergio Caballero. For more information on this research and the work of the MIT Sustainable Logistics Initiative, contact Dr. Josué C. Velázquez Martínez at josuevm@mit.edu.

Originally published at https://medium.com on December 7, 2020.

Editorial Director