How to Win at Third-Party Delivery
Third-party delivery is now a business model decision. This post breaks down a real example of how to align on strategy, protect the guest experience, and put DSP accountability in writing.
There was a moment when the leadership team at a global pizza brand with 1200+ locations realized their 3PD numbers weren’t making sense.
3PD had become a meaningful part of their business, yet their internal team was not aligned around a single vision for this part of their business. Contract renewal time forced the hard questions back to the surface.
They recognized they needed outside help to address their pain points with DSPs.
- Guest acquisition: Paid marketing wasn’t generating expected results.
- They tested paid support and saw mixed results in terms of the impact on sales.
- This reframed the conversation from “How much should we spend?” to “what is ‘effective’ in 3PD paid marketing?”
- To answer that question, genuine visibility into the return on that spend was needed.
- Operationally, the delivery experience was not meeting guest expectations or consumer standards such as door-to-door visibility, consistent handoff, and product quality upon delivery.
- The contract wasn’t built to answer the questions leadership actually had with regard to accountability, performance standards, and governance.
Our Solution
After conducting our due diligence and extensive stakeholder interviews with the client’s team, we at Figure 8 got in a room with the leadership team for a two-day, decision-oriented workshop. The goal was to get aligned on three things: the role 3PD of in their digital business model, the principles for paid 3PD marketing, and the dispatch/delivery/logistics solution that would protect the guest experience and create leverage for DSP contract negotiations.
Align Once, Execute Everywhere
In that workshop, the discussion and debate focused on who owned what, what ‘effective’ meant, and where the brand wanted control.
DSPs are complicated and cross-functional, which makes them easy to neglect or silo.
Many times brands like our client approach DSPs through four disconnected lenses:
- Marketing focuses on brand visibility and demand on the DSPs: Promos, sponsored listings, and placement in the search results.
- IT focuses on systems and integration: Menu sync, integrations, uptime, and data feeds.
- Operations manages the consequences: Order notification and fulfillment challenges, driver behavior, refunds, store-level workarounds, and guest issue resolution.
- Finance gets the surprise: A complicated and cryptic fee structure to map to accounting standards, statements that don’t reconcile, and an ROI that’s hard to prove.
DSPs sit at the intersection of brand awareness, e-commerce economics, order logistics, and demand generation. Internal alignment on the role of DSPs in any digital ecosystem is the opportunity and the prerequisite to negotiating with real leverage.
DSPs sit at the intersection of brand awareness, e-commerce economics, order logistics, and demand generation. Internal alignment on the role of DSPs in any digital ecosystem is the opportunity and the prerequisite to negotiating with real leverage.
Decisions that Create a Proactive Negotiation
In our case, we used the workshop environment to help our client align on a vision for the three critical factors we met to address:
(1) The role 3PD should play in their digital business model,
(2) The principles for paid 3PD marketing spend, and,
(3) A dispatch/delivery/logistics solution.
This allowed us to create a clear wishlist to bring to the negotiating table with the DSPs.
Contract Terms That Protect Profitability
With this client, and across other brands we have worked with, we see common themes for the gaps and pain points in DSP contracts:
- Missing or weak SLAs for performance and fulfillment with enforceable commitments (up time, availability, prep-to-pickup timing, delivery times, cancellation rates, missing & incorrect error rates) and clear remedies.
- Marketing accountability tied to spend: transparent reporting, agreed definitions of performance, and metrics that distinguish incremental demand from demand the brand already owned.
- Commission rate leverage for self-delivery and/or 1PD delivery access for the DSP.
- Data and rights clarity: permissible use of customer data for self-delivered orders (including addresses), access to marketplace performance insights where available, and protections around keyword/brand terms to protect the DSPs from conquesting those terms.
- Governance expectations: defined QBR cadence, senior account coverage, and escalation paths.
Start with a Holistic Digital Strategy. Emerge with a Proactive DSP Negotiation Roadmap.
In that two-day session, the breakthrough was getting the stakeholders in the same room in order to:
- Accelerate alignment among top executives by bringing varying points of view to the table with all key decision makers present.
- Add the benefit of an outside perspective from our team to set priorities and identify critical decision layers
- Produce a decision record and priority map.
The point is to make sure the DSP contract reflects their contribution to the holistic digital strategy and allows them to be a good partner in the brand’s digital future.
Ready to move? Let’s talk.
