UPS and FedEx Escalate Holiday Service Shopping War

Brown is going platinum. And so are its competitors.

Convergence is doing funny things to genetics, figuratively speaking. UPS and FedEx have already morphed into a kind of reindeer elf, not just shipping and delivering, but managing the process. Assembling, repairing and otherwise assuring that the entire logistical process is under their control - along with the excess margins that come with that sort of power.

But their competitors like Amazon and even some retailers are also on the prowl for advantage. And the next stage of this evolutionary development is turning these companies towards personal concierge services as a way of further mining the consumer's penchant for convenience and their willingness to pay for it.

Customizable delivery seems like a significant next step but may simply be a transitional phase. The Holy Grail for retailers and credit card companies has been using Big Data to identify what an individual consumer might purchase next. UPS and FedEx, just like Amazon and American Express and Google and a host of others, want to own as big a part of that transaction as they can. And they are not that far away from doing so.

Managing the information and the logistics and the financing gives companies the ability to both steer customers to purchases that give the controlling entity an advantage and enable them to generate 'excess' profits - those that may be in excess of what might otherwise be reasonably expected.

There is a distinct possibility that governments will become uncomfortable with the degree of concentration to which this leads. Anti-trust may be an old concept, but it has not lost its power. How this evolves may have a lot to do with the future of shopping, retailing, finance and consumer choice. JL

Betsy Morris reports in the Wall Street Journal:

United Parcel Service Inc. and rival FedEx Corp. have already made themselves as indispensable to Christmas as Santa Claus.

This season, though, they're taking a much more active role in holiday shopping than just delivering packages for retailers like Amazon.com Inc., Apple Inc.and Nordstrom Inc. UPS and are racing around neighborhoods trying to lock in consumers with door-to-door, even door-to-office customized deliveries that make them more concierge than delivery service. .UPS is pushing a service called My Choice that sends multiple digital alerts and updates about when to expect pending deliveries. The service, which currently has 2.1 million subscribers, allows a consumer to reschedule, reroute or waive a required signature. For a $40 annual fee, a "premium" member can instruct the UPS driver mid-route: put the package behind the potted plant; drop it next door; deliver at a different time or bring it to my office.

The service was introduced a year ago, but UPS began national TV ads in September in anticipation of the holiday season and has since added teasers and banner ads on its website and more promotion on its missed delivery notices.

FedEx is telling consumers bluntly on its website and in its stores: we (not UPS) deliver on Saturday. It now offers deliveries in the evening or "by appointment," (arranged with a call ahead to the recipient), same day across the city or the country—all for varying fees. FedEx boasts that its home delivery and Ground are faster than UPS Ground, a claim that UPS, of course, challenges, saying it all depends on what package and routes a customer picks.

While FedEx doesn't bundle its services into an offering like My Choice, it does allow customers to sign up for alerts, track their packages and have packages held and rerouted free of charge. Some of UPS's My Choice services cost $5 a piece.

Both companies want a bigger stake of the ecommerce boom, especially during peak holiday season. "We tend to think of our growth markets as international," said Gene Huang, FedEx chief economist and vice president. But the ecommerce niche is growing so quickly that it has turned a mature domestic market into an attractive growth opportunity, too, with no signs of slowing, he said.

Online holiday sales are expected to increase about 16.8% this year versus last, according to eMarketer, compared to the 4.1% annual increase the National Retail Federation predicts this year for holiday retail sales. Mr. Huang said he expects that kind of disproportionate growth to continue for the foreseeable future.

FedEx and UPS have another big incentive to promote these new services. Residential parcel deliveries are growing faster than deliveries to businesses. From 2000 to 2011, deliveries to consumers at UPS grew at a compounded average growth rate of 7%, compared to business volume that declined at a growth rate of 1.8%, according to Satish Jindel, president of SJ Consulting Group, a transportation and logistics firm.

But to ensure profitability, the companies need to deliver as many packages to as many homes as they can in each neighborhood they visit, because residential deliveries are generally more labor intensive than heftier, higher-volume business deliveries.

As the residential business has grown, "we started saying 'hey we need to be more efficient,'" said Alan Gershenhorn, chief marketing and sales officer at UPS. "We need to understand the customer experience."

A survey the company commissioned earlier this year yielded surprising results: package delivery plays a pivotal role in online shopping behavior. Of the 3,100 online shoppers surveyed, 86% were either satisfied or very satisfied with online shopping experiences overall, according to comScore, the data analysis firm that conducted the survey. But their satisfaction levels dropped considerably once they reviewed shipping options.

About 58% of the shoppers said they want free or discounted shipping, weighing the price of shipping almost equally with the price of the item they were buying. They also said they want deliveries quickly; 54% said they bailed on a purchase because delivery would take more than five days, and 43% expected delivery in two to three days.

Forty-eight percent of consumers said they want the ability to give special instructions about where to leave an item, and 62% said they want a return label included.

Findings like these have changed Mr. Gershenhorn's thinking. "We're not just supply chain specialists. We're demand chain specialists," he said.

Many aspects of UPS's My Choice are designed to reduce "cart abandonment" and make online shopping "seamless," said Mr. Gershenhorn. Both UPS and FedEx are trying to offer shoppers more control over arrival times and delivery locations. They are also trying to facilitate returns by picking them up at a shopper's door.

For all its logistical savvy in moving freight across continents, though, UPS's difficulty in streamlining the residential delivery business was in full display one recent evening as driver Doug Smith attempted to deliver 18 packages in a dense apartment complex in Dunwoody, Ga.

Repeatedly, he lugged boxes up three flights of stairs to knock on doors that nobody opened. Only four customers were at home to sign for their packages. At every other stop, he filled out a note, stuck it to the apartment door and lugged parcels back to his truck.

Earlier in the day, one My Choice customer had asked him to leave her package at a UPS Store. Other days, My Choice customers have instructed him on where to leave packages or requested after-work deliveries, eliminating the need for repeat delivery attempts.

Until My Choice takes off, however, Mr. Smith said, "you just have to take it one step at a time."