Ecommerce landscape and analysis of pickup points usage and their optimal location in China

It is well known that China is, despite financial crisis and expected slower economic growth, one of the world’s most promising developing countries, with a high rate of industrialization and an incomparable customer base. These elements inevitably conciliates with the promising growth of e-business which, beyond any doubt, shows a surprising developing rate in the country, affecting both business economy and consumers. Is from the end of 2013 that China started to lead all other countries in B2C and C2C, representing one of the most promising countries for the further development of e-commerce platforms. By the end of 2013, the deal size of Chinese e-commerce market reached 10.2 trillion yuan, up 29.9% from the previous year. Online retail sales in China have grown 41.2% since 2012, while the United States have only seen a 16.9% increase in 2013, confirming the data showing how Chinese consumers nowadays purchase more things online than United State citizens, as result of China’s push for the development of new technologies and innovative business models that have become a cornerstone for a further economic growth in recent years. These macro-trends have to couple with the particular landscape of Chinese ecommerce, where the giant Alibaba dominates both B2C and C2C market with his online platforms Tmall and Taobao, reaching an incredible market share far away from the smaller numbers presented in Europe and US. A player who wants to compete in this extremely concentrated market has of course to consider that the future development of China’s e-commerce channel is closely linked not only to the technology development, but mainly to the behaviors of Chinese consumers, intended as the way they search online, how they order products and even their preference regarding speed and convenience on deliveries. It is particularly from this point of view that we can denote the main change concerning customers’ behavior during years: if before ecommerce platforms were a convenient point for clients in order to buy cheapest products, now the average customer base is experiencing a rapid change, evolving in a more service-oriented buyer base. Even if before the price was the unique variable considered by customers in order to buy a product, nowadays service and delivery modalities are becoming more and more important, affecting not only the average spending, but also the reachable customer base. If an ecommerce player wants to appear competitive in China it has to properly manage, in direct or indirect way, its entire supply chain, focusing on last mile deliveries in order to offer a value added service to clients and control the operation costs. Ecommerce for physical goods nowadays generates a significant demand for dedicated delivery services, increasing in this way logistic complexity and introducing difficulties in last mile logistics. Home delivery services in particular, which are the preferred option for online consumers all over the word, contribute to the atomization of parcel flow, causing additional cost for the companies, additional pollution and problems within the urban areas. However, in recent years, alternative delivery solutions are growing fast, especially in metropolitan areas where ecommerce demand is increasing (thanks to the spread of IT systems such as laptops, tablets, smartphones and even social networks) and new delivery solutions are necessary. The incredible ecommerce demand expansion faced nowadays in China inevitably requires an improvement of service quality, replying to Chinese consumer’s request for new and more sophisticated delivery services. Delivering through pick-up points is a novel solution for the “last mile” in ecommerce. In the last decades European countries established a solid network of delivery points and social cognition of this delivery method had improved remarkably. Contemporary in US, although service level of express carriers is outstanding, their conventional delivery system could neither meet e-shopper’s demand, leading some carriers to develop a new delivery network operated over community’s pick-up points. Additionally, in Asian countries, both Japan and Taiwan had developed a famous delivery way called “on-line shopping with pick-ups at convenience store” that became the primary delivery channel for local electronic retailing industry. As a contrast, in mainland China, a couple of leading firms had also set up pick-up points to provide alternative delivery method for customers, including JD.com, Dangdang, and Sf-express. However, currently service capabilities and network size of these picking up service networks were not comparable to overseas counterparts. Despite that, the development of a network of pickup point has to be supported by rational procedures in order to optimize all the delivery operations and allow a significant cost reduction. It clearly appears that among pickup point solutions there is a huge interest by all parties and these solutions could represent an interesting opportunity to develop alternative delivery in order to meet customers demand and, in the meantime, optimize companies operations. Of course these solutions bring with them an huge opportunity to rationalize routes and reduce the delivery variable costs supported by a carrier, but also they have specific characteristics that could represent a valid differential for a new and innovative service market proposition to the end customers. However, despite all the clear advantages of this delivery solution, pick up points take with them unavoidable fixed costs, regarding the investment on additional reception boxes, or additional commissions that have to be paid to shops or other business owners. These extra costs could be dangerous for a company which has to optimize its operations and, if the location of a certain collection point is not carefully selected, the resulting cost sustained to develop these solutions can be equal or even greater than the sole adoption of home delivery modality. As a matter of facts, in the literary linked to pick up points usage, less attention has been given to comprehend how these structures can be rationally located in an urban area and integrated with the existing network of a company. Develop a model that could take in account not only the demand pattern in an area, but also consider the cost and revenue structure of a company is certainly a valuable effort in order to provide a decisional support for all the business involved with pickup point usage and, in this way, rationally identify possible locations for pickup point spots and support decisions regarding the usage of these new delivery methods.