Things are changing in the e-tail industry thanks to free shipping services like Amazon Prime. There’s now a lot of pressure to deliver goods as quickly as possible.
While online shoppers have always looked for the lowest price, they are placing an ever-greater importance on delivery speed.
According to Feedvisor, a re-pricing company for Amazon sellers less than 20% of consumers always go for the cheapest item. The other 80% are more interested in customer service, a better experience, and perks such as free and fast shipping.
This is why the shipping programs that Amazon (Amazon Prime), Overstock (Club O), Sears’ (Shop Your Way Max) are offering have become more popular. While you do have to pay to join these clubs they offer fast and free shipping which brings in the consumers. Unfortunately it’s not always possible for a retailer to deliver an item quickly.
One major factor involved is the need of online retailers to rely on shipping companies such as FedEx and UPS for handling the delivery. This means they have little control over the delivery process, even though the retailer suddenly becomes the one to blame if there is a shipping issue.
The founder of Wholesale Janitorial Supply Elliott Greenberg says that “retailers need to deliver on promises. No matter what benefits are in a program an item must be delivered within two days if you say it will be there in two days. When you fail to deliver you disappoint customers and retention levels drop.”
A recent survey published by Reuters and Ipsos showed that Amazon Prime actually didn’t deliver on time every time. 10% of the consumers surveyed said that they didn’t receive their orders made between November 1st and December 31st within two days. Amazon says that these statistics don’t match up with their figures and are inaccurate.
There was another survey which showed many people who are members of these free shipping clubs are considering discontinuing their membership due to deliveries being late. The survey comes from Bizrate Insights, which is a platform of Connexity; who work with several retailers including Sears and Barnes and Noble. The survey claims that just under 10% of members of shipping clubs are considering not renewing the service because of this very reason. Once again Amazon claimed the survey isn’t credible. Even so, making deliveries on time is becoming a big issue for online retailers.
Hayley Silver, the vice president of Bizrate Insights believes that these are challenging times for retailers. There is a delicate balance between the desire to receive orders in a quick and timely fashion and the desire to not pay for shipping. Offering free shipping is a great way to bring in new consumers and increase sales, but it also increase costs and introduces the challenge of delivering on time. Hayley does believe that retailers will be able to figure it out, but it is still going to be a challenge.
There is clearly a greater importance being placed on free shipping programs for the retailers that offer them.
ChannelAdvisor estimate that there are over 40 million paid members of the Amazon Prime club and that these people account for around 15% of the 270 million active buyers Amazon serves. Amazon don’t actually release the exact numbers for Prime, but they do say that these numbers are growing. They recently shared that Prime membership grew 53% year-over-year in the fourth quarter of 2014. While we don’t know the precise number we can say that Amazon care more about Amazon Prime members than non-members.
The CEO of ChannelAdvisor Scot Wingo said in a blog post that Amazon Prime users spend up to four times as much as regular Amazon users. As such they make up a massive share of the Amazon market.
Even though these days Amazon Prime is about much more than just two-day shipping it is still important for Amazon to keep this original promise to maintain a healthy relationship with Prime members. Amazon could very well possess the logistical heft and the balance sheet to tackle this challenge thanks to having over 100 fulfilment centers and their many other investments. These promises are harder to fill for companies such as Overstock though. Overstock only has three fulfilment centers.
The CEO of Overstock Patrick Byrne has said that the company placed these fulfilment centers in strategic locations to enable them to reach up to 98% of Americans within two days. Byrne also said the company is looking into ways to improve their national reach.
Byrne said that Amazon are able to deliver two-day shipping through the sheer amount of capital they have invested. Byrne’s plan is to replace capital with information, such as strategically placing their warehouses to increase their reach without it costing billions of dollars. The company has reduced their shipping times and they have done so with the use of data and analysis.
Overstock are upping their membership service much like Amazon is. They recently announced that they will soon launch a digital platform to rent and sell digital media on, as well as offering video subscription services. Enhancing the membership program is key to increasing numbers, which is critical for Overstock given that roughly 20% of their business comes from Club O members.
However meeting basic customer expectations will always be the most important thing, even as what membership clubs include expands.