The battle for consumer loyalty is being waged over shipping and delivery.
Shoppers are demanding faster, more flexible and lower cost — or better yet, free — delivery options for their online purchases. The choices range from buying online and picking up in a store to same-day delivery of packages to homes or hotel rooms. While some retailers are lowering the purchase threshold for free delivery, others are eliminating the charge altogether. The question of whether fast is fast enough is a moving target.
Amazon, which has been raising the ante for speedy delivery, in early April expanded its Amazon Prime Now one-hour delivery service to Atlanta, after adding Miami, Baltimore and Dallas in March. Amazon, which tested Prime Now in December 2014 in parts of Manhattan, has since rolled it out to the entire island and parts of Brooklyn, where free-two hour delivery is available. Prime Now can be used by Amazon Prime members, who pay $99 a year for a variety of services. Prime Now’s one-hour delivery costs $7.95, while two-hour delivery is free.
“We’ll continue to add new locations to Prime Now in 2015,” an Amazon spokeswoman said, adding, “Since launching, we’ve seen high demand on everything from essentials like water and paper towels to more surprising deliveries such as getting a customer in Manhattan an Easy-Bake oven toy in 23 minutes.”
Amazon last month received permission from the Federal Aviation Administration to test a drone outdoors in its attempt to develop unmanned vehicles for 30-minute deliveries. However, the drone the FAA approved is already obsolete as Amazon has developed more advanced models. Amazon has also reportedly been testing delivery drones in Canada. Google is also planning to release drones into the sky, but not for delivery purposes. The company plans to send the drones to hover over locales without Internet access and supply connectivity to the areas below.
Tom Caporaso, chief executive officer of Clarus Marketing Group, said free shipping is a stronger incentive than fast delivery, citing a study where 88 percent of consumers said they’re more likely to shop online if promised free shipping. Costs borne by consumers are the leading cause of abandoned carts, while free shipping offers are twice as effective in closing sales as percent-discount offers, he said.
Seventy-four percent of consumers in a Boston Consulting Survey cited free delivery as the top factor to improve their online experience, 50 percent cited lower prices and 9 percent, same-day delivery. Target recently dropped its threshold for free delivery for online purchases from $50 to $25, after offering free delivery on all orders during the last holiday season. When Target offered free shipping on all orders last Christmas, it led to “significant gains” in the conversion rate and helped the retailer pull in new customers, a spokesman said.
Jet.com, the new e-commerce marketplace that’s setting itself up to compete with Amazon, will charge less for shipping more items, encouraging consumers to spend more on the site. As shoppers add products to their carts, shipping prices drop. Nordstrom has long had one of the most generous shipping policies in the industry, offering free delivery and free returns on most items day in and day out.
Retailers are trying to understand what aspects of delivery are most important to consumers and how to integrate them into their operations in the most cost effective manner. Wal-Mart has been testing same-day delivery in San Francisco and San Jose, Calif., and now Denver. Amazon expanded its venture with the U.S. Postal Service from Sunday delivery to include grocery delivery. In the past year, Amazon quietly opened dozens of locker pick-up locations in Manhattan, featuring an urban prototype of the self-service locations, which are inside 7-Elevens, Gristedes markets, parking garages and office buildings.
Meanwhile, Google Shopping Express offers same-day delivery in the Bay Area, Los Angeles, Manhattan, Boston, Chicago and Washington, D.C., and overnight delivery in Northern California. Participating retailers include Target, Walgreens, Sports Authority, The North Face and L’Occitane. Google earns a commission from merchants on each transaction and charges consumers $10 per month or $95 a year for a membership plan. Google Shopping Express, whose popular delivery items include everything from basic toothpaste and toilet paper to the more unusual tennis balls and hot sauce, charges the same price as local stores. “We are building this to scale,” the company said. “This is not a concierge service. We’re building an infrastructure that will become more efficient as it scales.”
“We’re excited to be part of Google Shopping Express in three markets and get a handle on how the logistics work,” said a spokesman for Target, which is testing is own same-say delivery service for a $10 fee in Boston, Miami and Minneapolis. Target is aggressively expanding shipment of online orders from stores, with plans to triple its base this year to 420 units from 140. “It cuts the time in half,” the spokesman said. “It’s a very important area. It’s making better use of our assets and inventory and making use of our stores in a different way.”
A 2014 Business Insider survey found that 40 percent of U.S. shoppers would use same-day delivery if they didn’t have time to go to the store. About 25 percent of shoppers said they’d consider abandoning an online cart if same-day delivery wasn’t available, but only 2 percent of shoppers who lived in cities where same-day delivery was available used the service.
Daphne Carmeli, chief executive officer and founder of Deliv, said, “Surprisingly, our data shows that the majority of online shoppers are less interested in one-hour delivery — unless it’s lunch — and much more interested in the option of delivering what they want, where they want it, at the time they choose. They want flexibility and predictability.”
Deliv, a crowd-sourced same-day delivery option for retailers and mall operators, has been expanding its presence. In addition to initial mall partners General Growth Properties, Macerich, Simon Property Group and Westfield Corp., Deliv recently added Taubman Centers and PREIT as it has expanded to eight major markets and 13 cities. Carmeli said the company plans to more than double its penetration by the end of the year and triple that in 2016. “We will add more mall operators,” she said. “We also have 250 retailers that are contracted with us. Most of them are large national retailers such as Macy’s, Bloomingdale’s and Williams Sonoma.”
Carmeli said that by adding the Deliv same-day delivery option to their existing checkout process, retailers can preserve the customer shopping experience, fulfill orders from inventory or from local brick-and-mortar stores and maintain ownership and data for each transaction.
“Every year customers are demanding more,” said Kenneth Pate, who recently joined Deliv as head of product from eBay, where he was vice president of product management. “Five years ago, getting a shipment in four or five days was fine. Now, they want it the next day or the same day, and increasingly they have options for that. It’s going to become an expectation.”
Carmeli has a new concept to bring more value-added to consumers: multiple pickups and deliveries on a route. “We could pick up and deliver dry cleaning or a bottle of wine where they deliver it locally along with the consumer’s mall purchases,” she said.
As for Amazon Prime Now’s one-hour challenge, Carmeli said, “We love what Amazon is doing. Amazon’s expansion of Prime Now is radically changing consumer expectations and resetting the bar. This is great news for Deliv. Other retailers feel the pressure to keep up and we enable them to do so — whether that is same-day or one-hour.
“That said, we do offer one-hour delivery, particularly for some floral clients,” Carmeli said. “Whatever the service level that is needed, our asset-free model is the only model that can efficiently deliver in this on-demand world.”
Caporaso said that 50 percent of online orders have a shipping promotion tied to them throughout the year. “Nine out of 10 retailers don’t give [free] return shipping and that was a pain point for consumers,” he said. “Retailers are trying to balance the shipping offer with the increased conversion and increased sales. Four or five years ago, the majority of retailers were still looking at shipping as a revenue line. Now, they look at it as a cost of goods or cost of doing business.”