Competing in the Amazon Era: What Retailers Need to Know

November 13, 2019

Get insights and data on the delivery promise gap between retailers and consumers.

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Learn how to compete in an Amazon-first world.

In the age of Amazon, staying competitive is no easy feat. The retail goliath accounts for about 50% of eCommerce sales, putting immense pressure on everyone else to match what they can do. Since Amazon announced its move to one-day Prime delivery, Walmart, Target, Best Buy, and more have all clamored to keep up.

But there’s a fundamental flaw with this: No one can match what Amazon does. To execute on their delivery promise, Amazon absorbs more than $27 billion in shipping costs every year. So, how can retailers hope to compete?

In this article, we explore the gap between what customers want and what retailers are providing.

The problem: Fast vs free shipping #

A major challenge for retailers is prioritizing their delivery promises. Do you optimize for fast shipping? Free shipping? Or some combination of both?

Deloitte found that 88% of consumers prefer free shipping over fast shipping. Yet, our survey revealed that retailers think it's equally important to offer both free (63%) and fast (64%) shipping, despite understanding that their customers want free shipping over fast by a 2:1 margin. The data from the survey reveals there is pressure to keep up with the new, faster shipping precedent that Amazon has set.

That becomes a problem when it comes at the expense of what customers actually want. When we looked at the delivery offerings from our 2019 survey respondents, we found that retailers are, by-in-large, optimizing for fast shipping instead of free shipping.

2019 Delivery Offerings #

Fast shipping (same-, next-, and two-day) was offered primarily at a price. Retailers that offer a 3-5 day delivery time, only offer it for free 50% of the time. 6+ day delivery times are more frequently offered for free, but the average customer is only willing to wait 4.5 days.

What’s at stake? Losing your customers #

Retailers that are choosing to compete with Amazon over giving their customers what they want run the risk of losing those customers. Sixty-five percent of consumers report that “they look up free-shipping thresholds before adding items to their online shopping carts,” and 29% percent have abandoned a purchase because two-day shipping wasn’t offered for free.

The industry average shopping cart abandonment rate is 68% and the number one reason for cart abandonment is because extra costs (shipping, taxes, and fees) were too high (53%). With abandonment rates this high, retailers can’t neglect customer preferences.

Barriers to offering a better delivery promise #

Finding out what your customers want is the first step, but executing comes down to your logistics. According to our respondents, the primary obstacles to offering a better delivery promise are costs and network limitations.

Fast and free shipping is expensive. More than half (53%) of survey respondents cited “outbound costs are too high” as a reason for not offering free shipping, and 37% cited it as a reason for not offering fast (1-2 day) shipping.

Meanwhile, 74% of respondents have only 1-3 fulfillment centers in their network. With a logistics network of that size, it’s extremely difficult to offer fast and free delivery due to the long-distance goods must travel to get to customers.

How to overcome these challenges #

Positioning your inventory closer to your consumers is the only way to improve your delivery promise and lower transportation costs. With on-demand warehousing, retailers and brands can add fulfillment centers to their network, position goods closer to their customers, and save on last-mile transportation times and costs (win-win).

Keeping up with Amazon may be like trying to hit a moving target, but meeting the demands of your own customers will always be more important.=