Being an online retailer isn’t easy these days. Balancing increasing customer demands for faster delivery times with the cost of doing so is a challenge that every e-retailer faces. Delivering individual orders to customers’ homes is significantly more expensive than stocking a store, and customers are being conditioned to expect free or below-cost shipping. As a result, companies are focused on how to get orders fulfilled and delivered to their customers as quickly and cheaply as possible.
Same-day delivery is so appealing to consumers because it merges the convenience of online retail with the immediacy of physical stores. Previously the size and weight of the ordered items limited delivery, but with new logistics technology and delivery providers, same-day delivery for a variety of items is possible. Only a select number of retailers (think Amazon and Walmart in certain markets) are able to offer this delivery service, but it is becoming more the norm.
Several factors have led consumers to believe that delivery should be free, when in reality the cost of delivery for a single item is considerably higher than for traditional store distribution. Marketing campaigns, the rise of Amazon, and promotional free shipping have all contributed to this expectation. Once consumers have experienced a premium level of delivery service, they are reluctant to return to a lesser (longer delivery times/more expensive) one.
The overall customer experience is influenced heavily by the speed of delivery. Many customers will choose to purchase from an online retailer based on delivery speed and will buy from an alternate if they cannot get the item when they want. Very few customers would be willing to wait 5 days for the delivery of an item that they can get on Amazon that same day for a comparable price. This creates a challenge for logistics managers with limited supply chains of real-time product visibility and short fulfillment lead times.
The creation of a same-day shipping network comes at a high cost. Even charging a fee for delivery often means losing money on delivering the same day. Absorbing this cost is easier for luxury retailers which have higher item value and bigger margins. The result is that retailers who sell lower-end items have a harder time with same-day delivery, especially if they do not have a high order volume. As consumers put more value on convenience, they will be more willing to pay for faster delivery. E-retailers need to get creative in how to pass that delivery fee on to consumers.
Keeping Up with the Competition
Amazon remains the market leader for same-day delivery, with the ability to deliver certain items within hours. In order to stay competitive, online and physical retailers are investing in their distribution networks and warehousing capabilities. Walmart and Target, two of Amazon’s biggest competitors, have been expanding their shipping networks aggressively.
Smaller companies that do not have an extensive distribution network have been relying on crowdsourcing companies such as Deliv, UberRush, and Postmates to leverage drivers with their own vehicles as excess capacity.
As consumer expectations for same-day delivery rise, logistics providers will need to upgrade their existing networks to offer this level of expedited delivery that customers demand.