Category

eCommerce

amazon-effect-consumer-expectations_shipware

The Amazon Effect & Consumer Expectations: A Guide

By | eCommerce, News, Shipping Knowledge

Amazon emerged as a small online bookstore, and transformed into an e-commerce giant with 300 million users and a net income topping $177 billion. Each order placed on Amazon has contributed to what is called the “Amazon Effect,” which describes the shift in customer habits and expectations due to Amazon’s popularity.

The Amazon Effect started when the company began offering free shipping on orders of $25 or more. The popularity of this program was significant, so in 2005, the company upped the ante and created Amazon Prime, a membership program that would allow customers to get unlimited free two-day shipping for an annual fee. But the Amazon Effect doesn’t stop at shipping — it has caused widespread changes and influences to customers’ buying habits.

Post-Amazon Effect customers want more than a good buying experience. They want to go from “need” to “purchased” with a single click and to have items arrive to their doors as fast as possible. Understanding the Amazon Effect and its impact on customer expectations can help retailers of all sizes compete and generate more revenue. But how have expectations changed, and what’s in store for the future?

The Demand for Instant Gratification has Increased

In the past, customers figured that shipping costs were the price you had to pay for shopping online, but today paying for shipping is a huge hurdle for buyers — one that could result in significant loss of sales.

The channels in which people shop are also changing. With the advent of the smartphone in 2007 and the tablet shortly after, customers aren’t just shopping during brick-and-mortar stores’ hours — they are ordering around the clock. This creates expectations for an “on demand” experience in which customers get their needs fulfilled quickly. What’s more, customers expect retailers to understand those needs in greater depth. In fact, 76 percent of consumers report that they expect organizations to understand individual needs, which gives rise to the demand for personalization.

Advancements in technology are another factor that play a pivotal role in today’s retail environment, and studies show that customers are becoming more and more inpatient. In fact, 41 percent of respondents report that technology has made them more impatient than they were only five years ago. Customers want to order products with ease and receive those products quickly and with no charge for shipping, with 62 percent of online shoppers ranking free shipping as the most important perk that a company can offer.

Customers also demand less friction in the buying cycle. A customer may have visited several stores to find the right item in the past, but the Amazon Effect has changed that.

Customers can now view products within seconds, check prices, read reviews, and use “one click” buying features to quickly purchase products and have them shipped to their homes. This creates less friction in the buying process and generates large amounts of revenue for retailers.

The majority of customers (81 percent) expect improved response times from the companies with which they do business. When a customer has a problem with shipping or the product, he or she expects the company to harmonize that experience quickly.

The Price-Obsessed Customer has Emerged

The majority of customers today (79 percent) report shopping online. This doesn’t mean that customers aren’t still visiting brick-and-mortar stores, but most are either shopping online occasionally or, in some cases, more frequently. Regardless, there has been a huge spike in online orders since 2000, when only 22 percent of buyers reported shopping online.

What’s more, mobile shopping is the fastest-growing segment in e-commerce, worth $3.2 trillion in 2017, which is a jump over the $1.5 trillion reported in 2013.

Customers aren’t only shopping at their desktops or laptops at home, but they’re also shopping on the go — during their commutes, standing in line for coffee, and while watching their child’s sports practices. While doing all this shopping, they are empowered to view competitors’ prices within a few simple clicks.

Amazon has empowered customers, changing expectations to the point where not only do they expect free shipping, but they also expect lower prices. With a few simple clicks, they can move through the shopping process faster than ever. And this new consumer, one who is price-sensitive and empowered with the tools to shop competitively faster, frequently starts his or her search for a product with Amazon.

In fact, nearly half of all product searches start with Amazon. Customers think of a product they want, visit the company’s website, check reviews, and make a fast purchase decision. Amazon has actually surpassed the popularity of Google when it comes to product searches.

Amazon is constantly working behind the scenes to deliver competitive pricing, using technology that updates various prices thousands of times a day. Competing with Amazon requires retailers to contend with customers who are constantly comparing prices online and making snap decisions. In addition, it’s not only pricing that is influenced by the Amazon Effect, but it’s also customers’ expectations about the information they receive regarding products and services.

Customers Want More Product Information

The Amazon Effect has influenced customers’ expectations regarding how they shop and how they expect to receive information. Even customers who shop at brick-and-mortar stores are still using Amazon to justify their purchases.

Here is an example of a common scenario today: A customer enters a brick-and-mortar retailer to find a new computer. The salesperson makes a recommendation based on the customer’s needs and budget. The salesperson steps away, giving the customer time to consider the offering, and in an instant, the customer grabs his or her own smartphone and jumps online. The destination is Amazon. Once reaching Amazon’s site, the customer checks prices and reads reviews to learn what other customers like and dislike about the product.

The majority of customers (70 percent) report that they look at product reviews before making a purchase. What’s more, product reviews are 12x more trusted than product descriptions from manufacturers.

In an effort to keep up with the Amazon Effect, many retailers have created their own place for customers to leave product reviews online, giving customers an additional resource to check when making buying decisions. Customers want product information. And they aren’t simply looking at product details. They also want information about other buyers’ experiences with these products, including detailed photos, size dimensions, and more.

The Demand for Personalization is Rising

The Amazon Effect has changed expectations around personalization. Pre-Amazon, customers might be delighted if brick-and-mortar salespeople remembered their names, preferences, and details that made them feel known. But Amazon took this personalized shopping experience and expanded it at scale.

The early days of Amazon included the “people who bought this item also bought …” notice while people were online in order to entice someone to consider additional products. This “endless aisle” feature was a powerful tool in helping customers view similar products online, but it also made the experience feel more personalized.

Amazon is leading the efforts in personalization in e-commerce shopping, and although the “people who purchased” widget is still there, it’s taking a deeper dive into serving up personalized options, and these expansions trickle down to all retailers. Customers don’t just appreciate personalization — they demand it.

Studies show that 86 percent of consumers say that personalization plays a major role in their purchasing decisions. Online shoppers are 45 percent more likely to shop on a website that makes personalized recommendations. What’s more, 56 percent of online shoppers report being more likely to return to sites that offer these recommendations.

Amazon uses technology to get to know their customers, leveraging their purchase history, items they’ve looked at and items they’ve rated, and then pools all that data with the profiles of customers with similar interests. Customers don’t just enjoy personalization during the buying process, it’s proven to generate more sales. Amazon found that 35 percent of all their sales are generated by the recommendation engine.

Personalization also builds loyalty with customers as they begin to feel truly known by a retailer. As a result, they crave these personalized experiences with retailers due to the Amazon Effect, and those companies that don’t deliver it won’t enjoy the benefits of building relationships that are lasting and foster loyalty.

The Speed of Innovation Continues to Shape Expectations

The Amazon Effect is built on the speed of innovation. Amazon brought customers free shipping, but they also brought them fast shipping. Receiving a package in two days pre-Amazon would have come with a big price tag. And shipping items that were light, such as a ball of yarn or a tube of lipstick, was unrealistic due to shipping prices. But Amazon has changed all of this, shipping many items at no cost to the consumer. These capabilities are built from the company’s innovation and technology resources.

Once customers adjust to the new innovation, it transforms into something that is expected. Retailers are then left to figure out strategies to keep up. Founder Jeff Bezos said:

“We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.”

Wise retailers are keeping an eye on Amazon’s new innovations. Each one has the ability to transform the Amazon Effect yet again. For example, the company recently introduced Amazon Key, which is an in-house and in-car delivery service. It allows customers to receive shipments inside their homes or cars by purchasing a kit that provides key access and comes equipped with a video camera (the video camera allows the customer to watch their item being delivered remotely).

In addition, Amazon has also created “Prime Air,” which is a delivery system that is designed to get items to customers within 30 minutes of their order. The items are delivered via drone and, by 2020, Amazon forecasts the company will have over 450,000 drones in its fleet and be operating this delivery model worldwide.

The Amazon Effect is constantly changing customer expectations and retailers should stay apprised of the current effects but also anticipate those in the future, so they can create strategies for keeping up and staying competitive.

Finding the Way Forward

Amazon has come a long way from an online bookstore competing in a market that was heavily saturated with many different options. The company has expanded into nearly every corner of the world with product variety, offering customers everything from groceries to clothing in a single click. The company’s earnings continue to grow, with revenue doubling from 2015 to 2017.

Amazon’s work in raising the bar on the customer experience has created a gap between what customers expect and what some retailers deliver. The key to success is learning more about the expectations of your customers and working to close that gap. It’s through this data and insight that you can begin competing with the Amazon Effect. Once you accomplish this, you can create experiences that involve less friction and deliver results that delight customers and grow revenue.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our invoice audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption of current operations. Our team of experts has more than 200 years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.

amazon-effect-shipping-industry_shipware

What the Amazon Effect Means for the Shipping Industry

By | eCommerce, News, Shipping Knowledge

Decades ago, the idea of receiving an item that you ordered minutes ago within the hour was unthinkable. The logistics seemed impossible. Even receiving an item within a couple of days without having to pay any shipping fees appeared incredible. But today there is nothing incredible about either of these situations and, they have, in fact, become the “new normal.”

Amazon has innovated the market, changing the way that customers think about choice, convenience, and price. Customers have become conditioned to the low-cost, two-day, one-day, and even same-day shipping. They have access to a rapidly expanding menu of products that are available online, including everything from appliances to packs of chewing gum.

The Amazon Effect is a force to be reckoned with for retailers. All of the customers shopping through Amazon bring the same expectations to your doorstep. And if you don’t measure up, dissatisfaction trickles down to your bottom line.

A big piece of customer satisfaction involves shipping. Customers want packages to arrive faster and don’t want to pay a cent on shipping. But how is this affecting the shipping industry, and what effect is that having on retailers? A true understanding requires a closer look at the Amazon Effect and the underlying pressures it creates for retailers and shippers alike.

What is the Amazon Effect?

In 1994, founder Jeff Bezos started Amazon, originally as an online bookstore. But it quickly diversified into other offerings, such as DVDs, music, video games, electronics, and even clothing. The company now has roughly 269,000 employees and has transformed the way that people shop.

Amazon introduced buyers to an entirely frictionless experience. Shopping for an item or group of items is no longer a time-consuming chore requiring an afternoon of visiting various stores and making trips that may yield no success. This is likely why more than half of customers start the buying process with Amazon. In fact, Amazon leads over Google as a starting point for online shopping.

The moment customers think of a product, they can move through the shopping experience within minutes, with the product delivered to their home within a matter of days rather than weeks. And in some cases, delivery is the same day.

The Amazon Effect, however, has widespread impacts, and one major area where this is true is shipping. A retail study found that nine out of 10 consumers say free shipping is the #1 incentive to shop online. What’s more, in addition to free shipping, 69 percent of consumers listed one-day delivery as an incentive to shop online more.

Nearly half (49 percent) said that same-day shipping would make them more likely to shop online, while only 9 percent reported using same-day shipping during the past year. Demand for faster and free shipping started with Amazon, but now all retailers are seeing the effects.  

When Amazon started as a bookseller, the first offering of free shipping was no-cost shipping on purchases of $25 or more. In 2005, the company created Amazon Prime, which offered free two-day shipping on all orders for consumers who paid an annual membership. Now customers not only received free shipping, but they got their orders faster too. As customers became conditioned to fast, free shipping, expectations spilled over to other retailers. Why pay for shipping when you can get it free on Amazon? The result is a shipping industry that operates under a new set of expectations and intense pressure.

Shipping Sizes and Weight

Once the Amazon Effect took hold, shippers experienced higher volumes of packages to ship. Fewer people were visiting brick-and-mortar stores; instead, they were opting to shop online and get packages delivered easily to their doorsteps. The volume of packages being delivered to homes quickly skyrocketed. The U.S. Department of Transportation projects that by 2040, U.S. annual freight volume will increase by 45 percent to 29 billion tons. The pressure put on shippers increased as more packages began shipping directly from retailers to customers.

At the inception of online shipping, customers were picky about what they would ship. After all, they were footing the bill. Shipping a ball of yarn or a package of pencils was unthinkable, let alone affordable. A tube of lipstick was purchased at the local grocery store or cosmetics store, not sent through mail. The cost of shipping simply didn’t make sense. But this all changed with the expectation of free shipping. If the company is paying the shipping bill, why not buy the small stuff online? Free shipping was offered on many items online, including the small stuff.

Does a customer need a spatula for cooking? The customer won’t hesitate to purchase it online. School supplies that were previously purchased from the local office supply store are now purchased online, without any consideration for shipping, because it’s free.  

This shift created issues for shippers and how they needed to charge for services. Charging by weight no longer made sense to carriers. With the Amazon Effect in full swing, they needed to change their pricing model. Many carriers started charging for actual weight and dimensional weight, which takes into account the width and height of each box, which is now an industry-wide practice.

The result is that shipping costs aren’t necessarily low just because an item is light. This has forced retailers to rethink how they’re shipping items. Amazon, for example, often packages items together in the same order rather than shipping them separately, allowing the company to minimize costs and expenses.

New Delivery Methods

The Amazon Effect has created intense pressure to offer customers free shipping, but retailers are challenged with striking the right balance between a positive customer experience and their own company’s costs. Some carriers, such as UPS and FedEx, created services to help retailers manage costs, such as SurePost and SmartPost.

These services target the most expensive part of delivery, which is the “last mile.” This last mile can encompass a few busy city blocks or a hundred miles of rural road. Regardless, delivering a package directly to a home is expensive. Large, heavy trucks, manned by employees and subject to gas price fluctuations, create extra expense. The carriers developed these services to reduce the cost for this last mile of delivery by partnering with USPS.

The USPS visits most addresses in the United States daily. By leveraging this partnership, carriers drive down costs. For example, UPS or FedEx might drop off packages at the local post office or USPS distribution center, and those packages are then transferred to the appropriate USPS truck and delivered to the recipient’s mailbox.

These types of services are more cost-effective, easing the pressure of free shipping expectations; however, they can also affect delivery time. In most cases, SurePost and SmartPost will be slower than the carrier’s normal delivery time, but that might be an acceptable tradeoff for free shipping, depending on customer expectations. Additionally, the USPS delivers on Saturdays and this provides an additional delivery date to assist with speeding up delivery.

New delivery methods continue to evolve to meet the demands created by the Amazon Effect. The problem with the Amazon Effect for competitors, though, is that it’s not a static target, but instead, it’s constantly changing.

For example, Amazon recently introduced Amazon Key, which is an in-home and in-car delivery service that allows authorized shippers to gain access to Amazon Prime customers’ homes, post office boxes or the trunks of their cars at specific times. The purpose of the service is to reduce risk for theft. On higher-ticket purchases, customers may become worried when packages are left on the doorstep, especially if they know they will be away or have planned vacations.

Amazon Key requires customers to purchase a kit that Amazon installs. The customer receives a notification through the Amazon Key app that advises of the four-hour delivery window. A camera is included with the kit, which allows customers to watch deliveries in real time. Retailers that wish to compete should keep their eye on not only what the Amazon Effect looks like today, but also what it could look like in the future.

The Rise of Drones

One additional way that the Amazon Effect is changing shipping is by paving the way for the future of drone carriers. The company launched “Prime Air,” which is a delivery system designed to get packages to customers in 30 minutes or less using unmanned aerial vehicles. Last year, Amazon reported that its fleet of Boeing 767 cargo jets was up to 32 freighters. But Amazon isn’t the only one investing heavily in this shipping option – UPS is investing in drones as well.

Commercial drones travel up to 100 mph and have the ability to deliver small goods, typically weighing under 5 lbs. Each trip costs as little as $1 per shipment, which could create huge savings. In addition, faster shipments could translate into higher revenues because 86 percent of abandoned carts online are the result of expensive shipping costs. UPS estimates that cutting off just one mile on the routes of each of the company’s delivery drivers would result in $50 million in savings.

By 2020, Amazon estimates that it will have more than 450,000 drones in its fleet, operating with delivery worldwide. The introduction of drones could shake up the shipping environment even further – putting additional pressure on retailers to make faster deliveries, and forcing them to figure out how to accomplish this while keeping costs low. Drones might provide an interesting shipping option for retailers, with potential impacts to overall shipping costs.

Understanding the Future of Shipping

The shipping industry of the future will no doubt look different than it does today. Drones could be handling smaller packages, transforming logistics and potentially driving down costs for retailers. And there will likely be shipping options that haven’t even been thought of yet that could affect shipping costs and logistics. But as retailers look into the future, they shouldn’t just aim to keep up — they should aim to get ahead.

The way to accomplish this is by investing in technology that helps make shipping more efficient and — equally important — cost-effective. For example, technology that helps audit invoices assists with identifying where money is overspent and reducing costs. With intense pressure to meet evolving customer needs, savings are critical to keeping earnings stable and healthy.

The Amazon Effect and its influence on shipping processes will continue to alter how retailers strategize and operate. Customer expectations will continue to evolve, and these expectations will continue to influence the decisions that retailers make about shipping. Striking the right balance between meeting expectations and managing costs will ensure that your operation runs efficiently today and in the future.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our invoice audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption of current operations. Our team of experts has more than 200 years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.

The Amazon Effect & Your Supply Chain: What to Know

By | eCommerce, News, Shipping Knowledge

Amazon has changed commerce forever. It has disrupted the way that people shop. The days where you had to physically walk into a store to find the item you want to purchase are gone. Customers are now able to order items 24/7 using a variety of devices available at their fingertips – smartphones, tablets, laptops and even voice-activated personal assistants, such as Amazon Alexa. This is called the “Amazon Effect.”

By disrupting the way that people shop, Amazon has created a ripple effect that extends far beyond individual customer experiences and affects the entire retail industry as a whole. But what about your supply chain?

Understanding the Amazon Effect

Amazon has grown to generate $61 billion in revenue to date, and holds the title of “world’s largest online retailer.” The company, which was started out of the founder’s garage when he was 30 years old, has redefined the buying experience for consumers. E-commerce accounts for approximately 10 percent of United States retail sales. What’s more, Amazon accounts for 53 percent of the growth of online shopping. In fact, one study showed that more than half of all new product searches start on Amazon. When a customer has a purchasing need, he or she looks to Amazon first to compare prices, read customer reviews and gather information.

The “Amazon Effect” is a general term, describing the changes in customer habits and expectations due to the popularity of Amazon. Thanks to Amazon, shopping has never been easier than it is today. A person can think of a product that he or she needs, and have that product on its way to their home within seconds. The time to receive that product is also shrinking from weeks to a matter of a couple days and even 24 hours. The hard work of visiting multiple stores and wasting an afternoon shopping is eliminated. Areas around expectations for shipping, convenience, and pricing have all been influenced by the rise of Amazon as well. What’s more is that Amazon is no longer only operating in virtual space, but it’s also expanded to brick-and-mortar stores with the acquisition of large retailer Whole Foods.

In addition, Amazon launched their “Amazon Key” service in 2017. This service for Prime members brings the shipping experience to new levels with the ability to allow delivery drivers to drop packages inside a customer’s home. Users purchase a kit, which costs about $250 and includes a security camera and compatible smart lock.

While it might have been acceptable to place an order and wait a week for delivery in the past, the Amazon Effect has changed that. Customers now expect packages faster than ever. Plus, not only do customers expect quick delivery, but they also want delivery charges to be eliminated. These expectations place additional pressure on retailers and their supply chain.

The Role of Amazon Prime in the Amazon Effect

The Amazon Effect started out with free shipping, which allowed no-cost shipping on items priced higher than $25. But this was only the start. While initially competing retailers only had to deal with free shipping, after Amazon Prime rolled out, they had to deal with fast, two-day shipping as well.

The market response to Prime was overwhelmingly positive, and membership now includes more than 100 million subscribers. The membership offers everything from free movies and music to books and fast two-day shipping. In the age of instant gratification, two-day shipping was a huge success, and it wasn’t long before it had become the gold standard by which customers compared all retailers. In some cases, the ability to access faster shipping is the tipping point when customers are deciding between two different retailers.

In fact, more than 90 percent of respondents say that shoppers are “significantly less likely” or “somewhat less likely” to purchase without free shipping. What’s more is that 45 percent of customers admit to abandoning their carts due to shipping costs that are tacked on at the end of a transaction, which is nearly half of all shoppers.

A promise of fast delivery translates to a supply chain that must be highly efficient. One way in which Amazon does this is to move inventory closer to metropolitan areas. Recently, Amazon made efforts to position inventory in locations within 100 to 200 miles of major metro areas to help meet the promise of fast shipping. This has a trickle-down effect in many areas, including how much inventory to keep on hand at multiple locations.

Creating the 24/7 Experience & The Supply Chain To Support It

A few decades ago, people shopped when stores were open, but this expectation has drastically changed with the rise of Amazon and smartphones. Customers are operating in an “always on” environment and are fiercely tethered to their devices. The majority of people (71 percent) who own smartphones sleep with them nearby. What’s more, 57 percent say they use their phones at least once per hour when they’re awake.

With this always-on environment, customers expect their favorite retailers to serve them long after doors close. A 24/7 shopping environment is the norm. If a customer places an order that is promised in two days, he or she expects it to be there in two days — or faster — and has little tolerance for delays in receipt. These changing expectations have placed intense pressure on the supply chain.

Retailers may have previously batched orders together and shipped them during efficient times throughout the week pre-Amazon Effect. But in today’s lightning-speed environment, more retailers must have continuous shipments going out all day to expedite receipt times and keep customers happy. Managing the Amazon Effect involves producing efficiencies and cost savings through warehousing, disruption, and transportation.

The supply chain must be nimble and employ good technology that makes the process for delivery more efficient and creates more dependable and delightful customer experiences. In fact, many companies have added an entirely new position to the C-suite — the chief supply chain officer. This role is dedicated to managing these challenges, further highlighting the importance of the changes today and in the future.

This 24/7 experience also requires shipping a larger volume of products directly to the customers rather than shipping pallets to stores, and this is costlier and more complicated. In addition, new methods for inventory organization are required, since customers require products fast. Software is being used to keep up with these intense demands and fulfill multiple online orders efficiently, including programs that handle automation, scanners and even artificial intelligence.

Succeeding in the environment requires a supply chain that is agile, uses data efficiently, and has analytics in place that transforms data into decision-making information. The right tools allow companies to more efficiently manage supply chains and meet the intense demands created by the Amazon Effect.

The Challenges Associated With Achieving Speedy Deliveries

There are many challenges in the supply chain to work out when responding to the Amazon Effect. Customer expectations have evolved to the point where faster is better, and customer expectations are tied closely to the results. Loyalty is the currency of shopping, and creating the right experiences allows retailers to cash in. Creating this loyalty through providing faster shipping, however, affects many parts of the supply chain, including the following:

Small lots must be produced. Resellers must build large warehouses to store more inventory and figure out how to fill orders faster. Additionally, machine changeovers must be faster to accommodate a faster demand schedule.

Procurement is affected. The way in which materials are purchased much be changed. Procurement must respond faster to manufacturing needs and get the products manufacturers need at a faster pace in order to meet aggressive delivery demands.

Faster delivery systems must be put into place. The demand for faster deliveries transfers to carriers that must pick up items quicker and deliver them sooner. Inventory turn times must be quicker, and an expanded logistics network with higher levels of safety stock is required.

Using the same old supply chain strategy leads to stagnant growth. Retailers that want to compete with the Amazon Effect can’t use the same old operations but instead must update every part of their supply chain to be more responsive and flexible in order to respond to rapidly evolving demands, starting with achieving a better understanding of customer demands.  

The Supply Chain & Customer Wants

The Amazon Effect isn’t a fixed target, but instead is moving and constantly changing. Keeping up isn’t only about responding to what customers want today, but it is also about how their demands might change in the future.

Accomplishing this successfully requires asking the right questions to get to know customers and their changing expectations. The Harvard Business Review recommends asking the following questions.

  • What types of products do consumers want?
  • How much are they willing to spend?
  • How does the product differ from similar products?
  • How can we improve the shopping experience beyond that of Amazon?
  • Will consumers respond to marketing?
  • What type of marketing campaign will work?
  • Which brands have used this style of campaign before?
  • What were the results?
  • What conversion rate would be necessary to meet profit margins?
  • Will we match local competitor pricing?
  • What shipping options are available?  

Once you answer these questions, you can create a strategy that helps you get ahead of the competition. Equally important, you can create a supply chain foundation that delivers the products that customers want most.

For example, expedited shipping is an important feature to customers today, but what will be their needs in the future? One example of this is Amazon’s new delivery model in which the carrier brings the package inside the home. What is next for your customers? Once you figure this out, you can figure out how to position the supply chain.

Oftentimes, technology provides the answer. For example, if the goal is fast shipping, you can reduce transportation spending by using invoice audit software that helps identify where you are overspending and saves money in order to provide customers with a more seamless experience. Enhanced visibility into your freight and parcel shipping spending enables you to make better and more cost-saving decisions.

Improving the Customer Experience Through the Supply Chain

One of Amazon’s strong points is its technology. Technology that adds personalization and technology that gets products from screen to front porch quickly is key to customers. This requires companies to invest in the technology side of their businesses and not shy away from testing new innovations.

Companies must design new and improved processes and think creatively about the future and what their customers will demand not only today, but also in the next decade. The key isn’t keeping up with the Amazon Effect; rather, it’s staying one step ahead. Using technology to accomplish this allows you to position your company to thrive in the future and continue earning more revenue in a fiercely competitive retail environment.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our invoice audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption of current operations. Our team of experts has more than 200 years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.

What Is The Amazon Effect?

By | eCommerce, News

Amazon is a household name today, but at its inception in 1994, it was little-known and operating out of its founder’s garage. Within a couple of months, the success of that startup was clear, as it began earning $20,000 per week. Now the retail giant employs roughly 154,000 full-time employees and enjoys annual revenues that top $178 billion. What’s more, the company has completely transformed the way that people shop and think about the retail experience.

Brick-and-mortar store foot traffic has decreased by as much as 50 percent since Amazon’s inception as fewer people venture out to shop, and more open their laptops or mobile devices instead. Amazon has completely changed how, when and where people shop, and the results are known as the “Amazon Effect.” But what is this phenomenon, and how exactly does it impact retailers?

Understanding the Amazon Effect

Before Amazon existed, the shopping process was much different. A customer might have a specific need – for example, to purchase a blender. After identifying that need, he or she might have considered a specific store to visit in order to purchase that item. Sometimes price comparisons were more difficult, and the customer would visit multiple stores. If the shopper was having difficulty finding the right product, an afternoon could easily be wasted. Amazon has eliminated the waste from the shopping process, but it has also amplified customer expectations.

Customers now shop from a variety of devices, including laptops, tablets, smartphones, and even voice-activated personal assistants such as Amazon Echo’s Alexa. This creates a streamlined shopping experience and, as a result, minimizes friction during the shopping process. But it also intensifies expectations, which is typically what the Amazon effect describes. When shopping is easy, expectations change and customers expect everything about the process to be simplified, including shipping.

Free and Prime Shipping Are Transforming Expectations

More customers shopping online has resulted in more shipments on the road. In fact, 40 percent of U.S. internet users say they purchase items online several times a month. Furthermore, 20 percent of users say they purchase items and services online on a weekly basis. A couple of decades ago, these customers would have expected to pay shipping costs, but today, due to the Amazon effect, this has changed.

In 2005, Amazon launched a new service called Amazon Prime. Most people today have either heard about Prime or used it. But at the time, it was a new concept that offered customers unlimited, free two-day shipping on Prime-eligible products for an annual fee. Customers positively responded to the concept, and the company quickly onboarded about 2 million Prime members. As the word spread and Amazon continued to promote the idea, membership grew to 100 million.

Before Amazon launched Prime, the company was already “selling” the perk of “free” shipping by offering it on orders of $25 or more. Now, with both shipping models in play, the company is capitalizing on a psychology principle that is well-known to marketers: the use of the word “free.”

For example, in one marketing experiment, chocolate creator Hershey’s offered two types of chocolate: a Hershey’s kiss and a Lindt chocolate truffle. The kiss is an inexpensive treat, but the truffle is arguably tastier and costs more than a kiss. The first experiment offered study participants a truffle for 15 cents, and a kiss for one cent. Nearly three out of four subjects selected the more expensive truffle. However, in the next version of the experiment, the price of the truffle was reduced to 14 cents and the kiss was free. Even though the price differential was the same, the behavior of participants drastically changed: More than two-thirds of the subjects selected the free chocolate kiss over the truffle.

The same principle applies to retail and shipping. Even when the price to ship is low, free shipping is a much more powerful motivator for driving purchases. One retail study notes that nine out of 10 consumers say free shipping is the No. 1 incentive to shop online more. But for retailers, this creates a new challenge – one that has the potential to impact the bottom line: They must figure out how to offer customers free shipping while preserving their profit margin.

The Amazon Effect and Shipping Prices

Shipping costs in the United States are at record highs, and a strong driver behind the current levels is the Amazon effect. This increased demand is seen in many places, including the number of trucks on the road.

By the year 2023, the total population of trucks in the U.S. is expected to grow by 26 percent. Total miles driven are also expected to increase by 38 percent, and total tonnage carried is expected to increase by 26 percent. And since more transportation will be required to ship all these packages that customers purchase online, there is also expected to be a spike in the demand for long-haul drivers, forecasted to grow by 44 percent by 2040.

Thanks to the Amazon effect, the types of packages that customers ship are also changing. Since shipping is free, customers are more likely to purchase smaller items, which are covered in bubble wrap and boxed, taking up transportation space but with a low overall weight. Yet customers still expect free shipping on these items, and if shippers still charged only by weight, they would lose money.

So, the Amazon effect has driven shippers to change the way they charge, such as the idea of dimensional weight pricing – taking into account the volume and weight of each box. These changes were reflected in a price hike that FedEx announced a couple of years ago. Dimensional weight pricing, which was considered in a price increase by UPS, was a method designed to urge shippers to package items efficiently and reduce packaging materials.

As customer behaviors change and expectations become higher, especially around the area of shipping costs, it forces retailers of all sizes to evaluate their shipping practices and costs. How can companies keep up with the Amazon Effect and get customers the free shipping they demand, without sinking the bottom line? Some carriers are providing an answer that helps retailers manage this competitive climate.

The Demand for More Efficient Shipping Options

The rising cost of shipping is driving retailers to seek more creative shipping options. The old approach isn’t always efficient when a business is considering the Amazon Effect and the need to decrease shipping costs. One approach that retailers are using to cope with the Amazon Effect is focusing on the most expensive part of a shipping journey: the last mile.

The last leg of the shipping journey, whether it’s a few blocks or a few hundred miles, is the most expensive, which is why it presents the perfect opportunity to reduce costs. Major carriers such as FedEx and UPS create services that target these last miles and also reduce costs by using an established carrier: the U.S. Postal Service. The USPS already delivers to most addresses in the U.S., and by leveraging this carrier, FedEx and UPS are able to drive down costs.

For example, let’s say a retailer is sending packages through UPS SurePost. Packages are picked up the same way as traditional UPS packages, but since they’re marked for this service, the final leg of delivery is much different. In this case,, the UPS driver would drop the packages at the closest post office, and the USPS would complete the last leg of delivery.

Cost savings using this method can be significant. In fact, “last-mile shipping” can account for up to 28 percent of a shipment’s costs, and it’s estimated that savings under this new arrangement may be as high as 20 percent. This can be a game-changer for retailers looking to stay flexible and meet the evolving demands of customers.

Technology has also evolved in such a way that retailers can quickly determine where they are overspending on shipping and thus save additional costs. For example, invoice auditing software allows retailers to submit shipping invoices and uncover the exact places where overspending is occurring in order to further drive down costs. Leveraging data to increase visibility is key to making the right cost-saving decisions.

The Future of the Amazon Effect

The future of retail in the age of Amazon isn’t certain, but by staying up with customer demands, you can strengthen your retail business and get an edge over competitors. Already, Amazon has disrupted customer expectations, and these effects will only evolve and amplify in the coming years. Below are a few areas to watch in the future.

Instant gratification. Prime creates a “stickiness” with customers because they can complete a purchase within minutes and have the product at their doorstep in two days or sooner. Amazon is even moving the experience away from the computer to personal assistants, such as Echo products. In fact, last year, one in five U.S. shoppers made a purchase using voice-based technology. This instant gratification environment will put increased pressure on shippers and create less friction in the buying experience.

Creation of hybrid experiences. One trend that could also affect retailers and shipping is the hybrid experiences that Amazon is developing. For example, the company is leveraging brick-and-mortar locations with lockers that allow 24-hour access for order pickup and returns. This could streamline shipping and further reduce those last-mile costs.

Faster shipping times. Right now, many customers are willing to wait longer to take advantage of free shipping. But as more customers become accustomed to quick delivery, they may demand not only free shipping but fast shipping as well.

The Amazon effect isn’t set in stone. It’s constantly evolving as new innovation is added into the mix and customer demands change. For example, with the launch of Prime Air, it’s possible that the future may include customers receiving shipments via drone within 30 minutes of purchase. UPS is also experimenting with drone delivery, which may provide additional options for retailers. The key is to keep your eye on the trends and plot the best way forward.

Moving Forward With Greater Efficiency

A few decades ago, customers paid a high premium to get package delivery rushed in two days. This was considered “expedited shipping,” and in most cases, customers were willing to absorb the extra shipping costs themselves. But today, the paradigm has shifted as Amazon has changed the game and created a level of convenience that wasn’t available to previous generations. Demands will only continue to grow as technology advances and convenience continues to improve. With technology getting smarter, retailers will more efficiently be able to meet demands and manage costs.

The key to future success is not only having data, but also having the tools in place to use it and glean important insights. There is never a shortage of data, but knowing what to do with it is the key that unlocks success. Using the right software and tools allows you to efficiently determine how to manage and reduce shipping costs while improving the customer experience and fostering valuable loyalty.

About Shipware

Shipware delivers intelligent and innovative distribution solutions and strategies to volume parcel and less-than-truckload shippers. Whether you ship with FedEx, UPS, the USPS or regional carriers, our invoice audit and contract negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption in current operations. Our team of experts has more than 200 years combined of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19%.

how-retailers-can-compete-with-amazon-effect_shipware

How Retailers Can Compete With the Amazon Effect

By | eCommerce, News, Parcel Market Trends

Amazon started as a small, online bookseller, but it evolved to become a major disrupter in the retail space, changing the face of retail and shaking up online commerce. Customers no longer think about shopping in the same way, and their buying paths have shifted as they demand access to more channels, using the devices that they know and love.

Competing with a massive competitor such as Amazon can feel overwhelming, but when you understand the Amazon Effect and how to work with it – instead of against it – your business can make real gains. It all starts with customer experience, which is a key pillar to Amazon’s success.

Companies lose an estimated $300 billion annually due to poor customer experiences. Amazon has made millions of dollars creating personalized experiences and providing everything from suggested product recommendations to the ability to order via voice-activated personal assistants. Retailers can overcome the Amazon Effect and achieve great success, but they need to know where to start. Check out these powerful ways that retailers can compete with the Amazon effect.

Reaching Customers with Greater Impact

Customers are no longer shopping using the same old channels. They are ordering products while waiting in line for coffee, on the commuter train and at their kids’ sports practices. At times, they also still crack open that laptop and place an order. The Amazon Effect has created an environment in which customers expect a seamless omnichannel experience. In short, whether they’re shopping online from a desktop or on their smartphone at the local coffee shop, the customer wants that experience to be integrated and seamless.

Take, for example, cosmetic company Sephora. Consumers can shop, see their favorites list and past purchases, scan items in the store and see other options available online, watch tutorial videos, and find a store near them. The company’s approach to omnichannel has nurtured 11 million members who spend 15 times more money on Sephora than the average user does. Even if the niche your retailer serves is very different from this example, the message is clear: When you allow customers an integrated experience, giving them the option to view and interface with all potential channels, it increases loyalty and drives sales.

The key to creating a strong omnichannel experience is understanding customer behaviors and preferences and then creating an omnichannel experience that reflects those preferences. It’s likely that your company already collects large amounts of customer data. Having that data is the first step, but more importantly, you must gather insights to use that data and create stronger relationships with customers. The omnichannel experience can’t be clunky and disjointed, but instead must embrace digital retailing and the expectations set by customers in the wake of the Amazon Effect.

Zeroing In on Price

Planning a new purchase often begins in the same place for many shoppers: Amazon. In fact, Bloomberg reports that more than 50 percent of online shoppers start a product search with Amazon. Customers aren’t only checking for lowest prices, a category in which Amazon has built a reputation, but are also checking customer reviews, product options and more.

What are other customers saying about the products? Does it have bad reviews? Is the price competitive? Amazon is constantly updating prices several thousand times a day to stay competitive, and if your company doesn’t have some strategy in place to combat this phenomenon, it can be a problem.

Old-school methods around pricing won’t cut it in a post-Amazon Effect environment. Savvy retailers are combatting this challenge by using technology to keep pricing competitive. For example, they might use real-time analytics that allow for rapid price changes, similar to Amazon’s approach. Other retailers are using different approaches, such as allowing customers to name their price or take advantage of dynamic and personalized coupon offers.

When too many first-class seats are available, Hawaiian Airlines allows customers to name their price (with a price floor set) to get the seats. Although retail is different from an airline service, the name-your-price strategy, especially when inventories are high, can be an effective one.

Cart-level pricing is also used, where customers can take advantage of special offers and products at the cart level to drive additional sales. The bottom line around pricing and the Amazon effect is that customers expect retailers to be competitive. When loyalty is weak, they will quickly pick another retailer if pricing is more competitive or the experience is superior. The name of the game is being reactive and making moves fast. Create strategies to make this possible and stay one step ahead of competitors – and your customers’ demands.

Targeting the Demand for Ease

One of the major symptoms of the Amazon effect is expectations around simplicity during the purchase process. A few decades ago, the shopping process was labor-intensive. A customer would have an item in mind, pick a store or two, and start shopping, which was time-consuming, especially if the item was not found. Since online shopping wasn’t available, the customer might compare sale ads, but comparison shopping was difficult. What’s more, free shipping wasn’t common and the customer didn’t balk at paying shipping costs; shipping costs were expected.

Shopping is now a process that includes expectations of near-instant gratification. Amazon has one-click shopping, making it possible to complete transactions in a matter of seconds. Customers can shop multiple stores from a variety of devices – smartphones, tablets and laptops – faster and easier. The result of the Amazon Effect is that ease is now expected across all experiences. Customers expect to run into fewer barriers during the process, and if those barriers do occur, the tolerance is minimal, which can result in lost sales.

One way to compete against the Amazon Effect is to create experiences that eliminate friction in the buying process, as the Amazon one-click purchase process has done. For example, a mobile-first experience, responsive design and a variety of payment options, including digital options such as Apple Pay, leverage the critical factor of speed.

Magnifying the Transformation of Shipping

Amazon has transformed expectations around shipping, and the majority of retailers have felt the effects. Nearly 90 percent of respondents in a recent survey “somewhat agree” or “strongly agree” that Amazon has changed consumers’ expectations for order delivery.

It all began when Amazon started offering free shipping on orders that cost more than $25. Many retailers, such as Target and Walmart, have since created similar shipping offers. But what took shipping expectations up a notch was the introduction of Prime shipping, which offers unlimited two-day shipping free to customers with membership. In fact, Amazon “Prime Day” in 2017 produced sales of more than $1 billion, showing that not only do customers enjoy fast shipping, but it drives them to spend more.

In fact, more than 90 percent of respondents say that shoppers are “significantly less likely” or “somewhat less likely” to purchase without free shipping. Furthermore, 45 percent of customers – nearly half of all shoppers – admit to abandoning their carts due to shipping costs that are tacked on at the end of the transaction.

As a result, many retailers are being forced to offer free shipping to customers in order to compete in the marketplace, and that trickles down directly to their bottom line. Retailers are using a variety of strategies to handle the pressure of changing shipping expectations. One such strategy is “backing in” shipping costs to the product price. And while this offers a straightforward solution, it doesn’t always help retailers compete under pricing pressure. Higher pricing makes it difficult to stand out in a fiercely competitive environment.

Another alternative that retailers use is opting for shipping options that are less expensive. Major carriers, such as UPS and FedEx, developed shipping options that target the “last mile” of shipping, which is the most expensive part of the route. The U.S. Postal Service was already visiting most addresses in the United States, and partnering with the USPS to complete the last leg of delivery achieves savings that are passed on to the retailer.

There is a tradeoff, however, and that’s speed. These options are typically slower than what a more traditional service affords, but if expectations are set upfront and the customer accepts the tradeoff, it’s a worthwhile savings option.

Competing Through Products and Personalization

Technology has advanced, and retailers have gotten better at personalization – to the point where customers demand it. For example, Amazon does this through personalized recommendations based on previous purchases and on what others with similar interests buy. What’s more, customers who receive personalization from retailers spend more. In fact, 75 percent of consumers are more likely to purchase from a retailer that recognizes them by name, recommends options based on past purchases, or knows their purchase history. Additionally 59 percent of customers say that personalization influences their shopping decisions.

This demand for personalization is only expected to amplify in the future. Over the next five years, it’s said that $800 billion will shift in the retail, financial services, and health care markets from those that can’t deliver good experiences to the 15 percent that get personalization right.

As a result, retailers that want to compete with the Amazon Effect must provide experiences that are personalized and make customers feel special. Customers want to receive relevant offers and information at the precise moment of relevance. In fact, more than 78 percent of consumers will engage with offers only if those offers have been personalized to their previous engagement with the retailer.

Data is critical in this equation, as retailers need to have a variety of products that more closely match a customer’s needs at that relevant moment in time. Doing this correctly can create brand loyalty that gives you an advantage over the competition.

Creating Greater Synergy with the Amazon Effect

While it’s impossible to reverse the Amazon Effect and the consequences it’s had on the retail space, it is possible to use this trend to your advantage. Working against the current of this effect is more difficult than working with it. If you examine what it has uncovered, you’ll learn important details about how to best reach your customers and drive greater results.

For example, Amazon taught retailers not only that free shipping is a major hot button for customers, but also that when you combine free shipping with fast delivery (i.e., Prime shipping), it drives massive amounts of revenue.

A key piece of the puzzle in managing the Amazon Effect in the future is having the right technology in place that empowers quick decisions. Speed is the secret ingredient to meeting your customers’ demands at the exact moment of relevance, yet many retailers aren’t capitalizing on this yet. Furthermore, although 89 percent of respondents reported that Amazon has changed customers’ expectations for order delivery, more than half of those respondents have not adjusted their technology spending on order fulfillment and delivery. Only 40 percent of retailers have either somewhat or significantly increased investment in this area, which means that many have an opportunity for improvement.

Create a seamless omnichannel experience, maximize shipping efficiency, minimize related costs and look for ways to create more personalized experiences, and your company will be equipped to compete with the Amazon Effect and thrive in the future.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, the USPS or regional carriers, our contract audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption in current operations. Our team of experts has more than 200 years combined of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.

FREE Contract Negotiation Webinar - Reduce Your Parcel and LTL Shipping Costs by 10% to 30%Sign Up
+