When the editor of WNIM said that the theme for this issue of WNIM was sustainability in marketing, my first immediate thought was, there’s NO connection between E-commerce or online marketing and Sustainability. But I was wrong. Although technology is generally seen as a BAD THING when we talk about “Saving the Planet”, think long and short haul flights, TVs and electronic gadgets burning fuel when left on standby, perhaps E-commerce does have some upsides… This article looks at the impact of E-commerce on sustainability and along the way will illustrate some of the fulfillment challenges faced by online merchants.

Update:

See resources on Green E-Commerce and IT from Computing magazine.

Think about online shopping – imagine a situation where we no longer traveled to the shops, and 100% of items were efficiently delivered to us at home or at work. This would reduce traffic considerably! Although this situation is inconceivable since most of us enjoy shopping in the Real World too much, online shopping is growing considerably and it may be having an impact. Research by the Internet Media in Retail Group (www.imrg.org) shows the growing importance of E-commerce in the UK. They estimate that:

• £30 billion of retail spending is online
• 10% of retail sales now take place online
• E-retail sales have grown at an average year-on-year rate of 45% for the past 6 months
• E-retail sales have grown 2,000% in 6 years
• 44% of shoppers polled expect their online shopping to increase in the next 12 months
• 540 million parcels will be shipped to the UK's 26 million internet shoppers in 2006

The figures are impressive, but does this make any difference in reducing our shopping trips or have broader impacts? Well it might. The IMRG certainly want us to believe online shopping is green; in the summer it launched a GO GREEN, GO ONLINE campaign. It identified six reasons why it believes E-commerce is green. They are:

• Green effect 1. Less vehicle miles. Shopping is the most frequent reason for car travel in Great Britain, accounting for 20% of all trips, and for 12% of mileage. A study by the Swiss Online Grocer LeShop.ch calculated that each time a customer decides to buy online rather than go shopping by car, 3.5 kg of CO2 emissions are saved.
• Green effect 2. Lower inventory requirements. The trend towards pre-selling online - i.e. taking orders for products before they are built, as implemented by Dell - enables avoids the production of obsolete goods that have to be disposed of if they don't sell with associated wastage in energy and natural resources.
• Green effect 3. Less printed materials. Online e-newsletters and brochures replace their physical equivalent so saving paper and distribution costs. Data from the Direct Mail Information Service (www.dmis.co.uk) shows that direct mail volumes have fallen slightly in the last 2 years reversing an upward trend in the previous 10 years. This must be partly due to marketing E-mails which the DMA E-mail benchmarks (www.dma.org.uk) show number in their billions in the UK alone.
• Green effect 4. Less packaging. Although theoretically there is less need for fancy packaging if an item is sold online this argument is less convincing, since most items like software or electronic items still come in packaging to help convince us we have brought the right thing – to reduce post-purchase dissonance. At least those billions of music tracks downloaded from iTunes and Napster don’t require any packaging or plastic.
• Green effect 5. Less waste. Across the whole supply chain of procurement, manufacturing and distribution the Internet can help reduce product and distribution cycles. Some even claim that auction services like eBay and Amazon Marketplace which enable redistribution of second-hand items can promote recycling.
• Green effect 6. Dematerialisation. Better known as digitization, this is the availability of products like software, music and video in digital form.

How much could E-shopping reduce greenhouse gas emissions?

A study by Finnish researchers Siikavirta et al. (2003), limited to e-grocery shopping, has suggested that, depending on the home delivery model used, it is theoretically possible to reduce the greenhouse gas emissions generated by grocery shopping by 18% to 87% compared with the situation in which household members go to the store. Some of the constraints that were used in the simulation model include: maximum of 60 orders per route, Maximum of 3,000 L per route, Working time maximum: 11 hr per van, Working time maximum: 5 hr per route, Loading time per route: 20 min, Drop-off time per customer: 2 min.

The researchers estimated that this would lead to a reduction of all Finlands greenhouse gas emissions of as much as 1%, but in reality the figure is much lower since only 10% of grocery shopping trips are online.

Cairns (2005) has completed a study for the UK which shows the importance of grocery shopping – she estimates that car travel for food and other household items represents about 40% of all UK shopping trips by car, and about 5% of all car use. She considers that a direct substitution of car trips by van trips could reduce vehicle-km by 70% or more.

However, I believe savings won’t be significant since online grocery shopping has proved one of the least popular forms of online shopping. If you look at the sales of Tesco.com, the UK market leader in home shopping, sales for 2005 rose by 32% year-on-year, but they still only represent over 3% of its UK sales of £32.7bn! Tesco said it had 750,000 regular customers and 200,000 orders a week online giving a total turnover approaching £1 billion.

On a positive note, Tesco has committed to a £100m technology investment to help it become more environmentally sustainable. This includes installing wind turbines at some stores.

A broader study by Ahmed and Sharma (2006) has used Value Chain analysis to assess the role of the Internet in changing the amount of energy and materials consumed by businesses for each part of the supply chain. However, no estimates of savings are made.

E-shopping Fulfillment problems

Many readers will have faced the problem of missing a delivery for an item bought online. This is not only annoying and costly for everyone, but gives rise to additional journeys from the delivery company resulting in more emissions.

The problem is perhaps not as bad as you might expect as a percentage of all deliveries, but it is still costly. The IMRG (2006) estimates that around 12% of deliveries fail the first time, resulting in costs of around £300 million for the retailers, £123 million for the couriers and even £259 million for the consumers if you cost our time for sorting out the problem. The report estimates that typically it costs 15% less for a business to trade online compared to operating high-street outlets and this is what gives rise to typically lower prices online. However, by reducing the amount of delivery failures, potentially online trading could be still more cost effective.

Can the e-retailers do more to avoid these missed deliveries? A report by Snow Valley (2005) shows that potentially they could through offering more choice. The report showed that:

• 43% of retailers did not offer any delivery options, compared to 46% in 2005.
• Relatively few retailers have specific date options (81%) or time of day options.
• 24% offered Saturday delivery in 2006, compared to 23% last year.

However, larger retailers were more likely to offer specific date, time, or Saturday delivery options, so it is worth considering these if you want to avoid the frustration and those wasted trips.

Paperless billing - HSBC case study

These benefits are also often beneficial to companies in that they can make cost-savings while positioning themselves as environmentally concerned – see the box ‘HSBC customers plant Virtual Forest’.

HSBC has committed to improving the environment since it became a climate-neutral company globally in November 2005. Through the use of green technologies and emission-offset trading, HSBC counteracts all CO2 emissions generated by its building operations and corporate travel. In 2006, 35% of operations in North America were offset by investments in Renewable Energy Certificates from wind power alone.

Another aspect of it’s green policy is it’s online banking service, where it encourages paperless billing. For example, in the UK in 2007, over 400,000 customers switched from paper statements to online delivery, creating a virtual tree each time, and for every 20 virtual trees, HSBC promised to plant a real one.

References

Ahmed, N.U. and Sharma, S.K. (2006) ‘Porter’s value chain model for assessing the impact of the internet for environmental gains’, Int. J. Management and Enterprise Development, Vol. 3, No. 3, pp.278–295

Cairns, S. (2005) Delivering Supermarket Shopping: More or Less Traffic? Transport Reviews, Vol. 25, No. 1, 51–84, January 2005

IMRG (2006) Valuing Home Delivery - a Cost-benefit Analysis

Siikavirta, H, Punakivi, M., Karkkainen, M and Linnanen, L. (2005) Effects of E-Commerce on Greenhouse Gas Emissions, A Case Study of Grocery Home Delivery in Finland. Journal of Industrial Ecology, Vol 6, No 2, 83-97.

Snow Valley (2006) e-Delivery in the UK 2006