The meteoric rise in e-commerce, driven largely by Amazon, has written new rules for retail; perhaps the most damaging among them is the unrealistic expectation that shipping should be both instant and free. But free shipping isn’t free; it’s a pervasive myth that is shaping consumer expectations and rocking retailers onto their heels.
The Baymard Institute surveyed 4,560 US adults and learned that 55% of them abandoned carts because the extra cost of shipping was too high; in the EU, this number grew to 65%. According to the research, shipping surcharges were overwhelmingly the primary reason shopping carts were abandoned during an e-commerce purchase.
The inclination to reject shipping costs is growing while the actual cost of shipping is rapidly increasing. In 2018, Amazon announced that the cost of shipping as a percentage of net sales fulfillment was nearly 12% and this number was on an upward trend, having nearly doubled from 2009. This increasing shipping cost has become a massive burden on Amazon’s resources and is projected to be half the total cost of order fulfillment by 2025. In other words, the order, buy, store, pick and pack part of the supply chain will soon cost them the same amount as shipping.
In spite of this growing, unavoidable and calculable cost to shipping, Amazon continues to drive the free shipping message, using Amazon Prime memberships as a means to fund what may still amount to a net negative transaction. In doing so, the e-tail giant has tremendous competitive advantage and remarkable customer loyalty despite it being a huge drain on the company’s profitability.
For the rest of us, eating the cost and competing head-to-head is not a sustainable business practice. So how do we compete in this untenable ‘free shipping’ e-commerce world?
Successful organizations are beginning to realize that the shipping step of their orders can be a massive differentiator in their marketplace and add value to the overall brand and business. They are investing in the last mile, taking control over what used to be a simple cost of doing business and turning it into a competitive advantage with a positive return on investment.
Here are four ways that brands can leverage the shipping leg of fulfillment to differentiate the customer experience and create added value.
1. Use shipping as a part of your brand experience
When the well-known home fitness brand Peloton first came on the scene, they earned a reputation for their excellent equipment setup experience.
They offered a service where a Peloton technician came to your house with the equipment, carried it into the house, set it up and answered all of a new user’s questions about how to get started.
This white glove service built a wonderful first experience and made new users immediately comfortable with the technology; this helped create positive brand associations and great word of mouth references.
This type of differentiation can be successful, but heed Peloton’s own growing pains as a word of caution; as Peloton’s volumes and demand grew, they outsourced much of the delivery service and their customer service became patchy. These ‘Peloton delivery horror stories’ are now all over the web and the brand is suffering.
2. Make your packaging different and engaging
Consider the example of Rave Coffee, a direct-to-consumer (D2C) boutique coffee roaster out of the UK. Rave Coffee forms relationships with local vendors of premium snack foods who also offer D2C service and then includes a constantly changing bag of premium snacks along with every order.
Rave Coffee customers never know what the ‘free snack’ will be but know that it will be expensive and delicious, and perhaps a little unusual. This free gift engages customers, creates a lot of interest in the orders, and naturally encourages repeat orders.
In parallel, it also promotes these snack companies who may well be sister organizations to Rave Coffee, helping to cross-pollinate loyal consumers.
3. Be 100% transparent on the sustainability of your shipping selections
Customers are increasingly aware of the environmental impact of the shipping of products. In a study by PNAS, companies can reduce their supply chains’ carbon footprints while improving customer satisfaction by giving consumers pro-environmental options.
If the environmental impact of same-day or next-day shipping is clear to consumers, and alternate choices are available to them, it is likely that they will make more sensible choices.
Organizations are also taking a stand on sustainability by informing the customer the miles that goods have traveled or the means that the company has tried to ensure their goods, packaging and shipping are sustainable.
This form of differentiation has to be genuine and a part of the entire company value-set, but it does engage with a segment of the marketplace and create a lot of loyalty to the brand if done effectively.
4. Learn your customer and offer a service level unmatchable by the mega e-commerce sites
A well-known midwestern electrical distributor was facing competitive pressure by Amazon. Rather than throw darts in the dark, the company went out to their customers and asked them what caused them problems.
They discovered that the community of contractors who make up a significant part of their customer base had problems getting the right products to their job sites in time for work.
In response, the company built a fleet of delivery vehicles and promised next-day shipping to the job site for contractors with the goods arriving before the workday began.
This meant that the contractor no longer has to carry any specialty or commodity inventory; they simply sent in the orders for the next day every evening, making their work far simpler and cost-effective. The distributor no longer had to compete solely on price; unique service meant that they stood out in the marketplace.
No matter what is being hyped, the shipping process is never free; someone, somewhere pays for this expensive leg of the journey. But the consumer has been bamboozled into believing their purchases should arrive at their doorstep at the lowest possible cost and are willing to walk away if commodity shipping comes at a cost.
Unfortunately, it is very likely that if you try to compete on price alone, you will lose in a race to the bottom. If you try to rely on just your product, you will also likely lose to fierce competition offering cheaper versions of your product at a lower cost.
To win the e-commerce war, you have to find ways to transcend the novelty of free shipping and make value-added shipping a positive part of your brand experience.
Bill Denbigh
Bill Denbigh serves as senior director of product marketing for Tecsys, a supply chain software provider. He started working in supply chain software some 30 years ago; his entire career has been laser-focused on designing and building pragmatic supply chain solutions that address the real problems that customers are facing in their supply chain operations.
Bill has worked on virtually every aspect of software in the supply chain, gaining insight into the inner workings of some of the industry’s most complex challenges; Bill, however, tackles those challenges with a no-nonsense levelheadedness that has earned him great repute among peers.
