Evolution of Ecommerce Expectations
Ecommerce retailers are finding themselves between a 'rock and a hard place' when competing in today's market. Fast paced growth driven by more online shoppers and online channels, growing customer expectations for fast and free shipping, plus increasing carrier rates, make it difficult to compete successfuly.
The question in front of all of us is: how can I profitably meet the customer expectations in a rapidly transforming ecommerce-driven world?
To learn how to make shipping your competitive advantage we invite you to watch this presentation by Mike Comstock from the Shippo Summit. If you prefer we’ve transcribed his presentation below.
Impact of Amazon
There is no question, everybody is aware that ecommerce is growing at an accelerated rate. Based on research by MIT in conjunction with Internet Retailer, it is estimated that in 2016 there were 50 million ecommerce websites in the world. There's no question that Amazon is the catalyst for change in the ecommerce world. If we looked at the traditional retailers and compare that to Amazon in terms of market value over the last decade, it is really a sobering view. You can see that traditional brick and mortar retailers have really undergone a terrific erosion in their market value. During the same time we see Amazon's market value increasing nearly 2,000%.
Everyone that has to ship today is between a rock and a hard place. The customer expectations are increasing, willingness to pay is decreasing and you have to bear the costs for the services that they're demanding you deliver. Amazon keeps raising the bar. The thing about Amazon is they're more than an ecommerce retailer. They have other revenue streams that are helping them subsidize their growth and their penetration into ecommerce. The question in front of all of us is: how can I profitably meet the customer expectations in a rapidly transforming ecommerce-driven world?
Consumer Driven Supply Chain
The consumer-driven supply chain is what underpins ecommerce. Fulfillment is no longer just an afterthought. It is material to the consumer experience. 61% of all online shoppers look at reviews before they buy. That includes reviews not only of product but reviews of ecommerce retailers. Beyond that, typically, on average a consumer will look at three different websites before they purchase. It becomes very important as the consumer is shopping online that your website stands out and gives them something remarkable so that they buy from you.
One of the things that jumps out in the surveys is 51% of customers will abandon their shopping cart if they perceive the shipping to be too slow. Now, that shipping speed has really been set by Amazon. They've raised the bar to two day shipping for free. If you look at some information about Amazon customers, 80% of Amazon customers have signed up for Prime because of the two day shipping.
This really ratchets up the demands and the expectations of the customer. While the customer isn't willing to pay for shipping, none that fulfills orders actually get shipping for free. You're paying for it through your revenue streams.
Total Customer Experience
I want to point out some areas where we can find the advantage in shipping, find the advantage in ecommerce. One of the things that we have focused on a lot, is how do I get good transit times, great rates from my carriers. It’s very important but it's missing the point. This is how we get competitive advantage based on our fulfillment. What you have here is a screenshot from a web store, a shoe brand and this is from their own company website. We looked at this particular sandal. It's $129, we see the sizes, we see the colors. The question comes up, when would I get my order if I bought these shoes? Then the next question is: what are they going to charge me for shipping? These are all very important questions today in terms of your total experience with the retailer.
This brand sells their shoes on Zappos, on Amazon, and a variety of other websites. Given that consumers tend to look at three different websites on average before they purchase. What other website someone might check to buy these shoes.
Let's take a look at the identical product shown on Amazon. First of all we see the same product, same ability to order size and so on, same price. Right opposite the price, free shipping. Not only does it say free shipping, it tells you exactly the date and day that you will receive your purchase if you purchase within a three hour timeframe. If you're out there shopping for a pair of sandals, how many of you would purchase directly from their store? How many would purchase from Amazon?
If I see a website where the shipping cost isn't clear or available or the delivery time isn't specified on the product page, I'll throw something in the cart and go look, "Okay, let me see what this is because it might be a good deal after all." I did that on their website and here, again, in the cart it does say it's free shipping. The free shipping is three to eight days. I still don't know when I'm going to get the sandals. Even so that they include the shipping in the cart, and it's clear on your options, it's still nowhere near the customer experience that you get with Amazon.
When you put the Amazon purchase in the cart you get even more options in terms of the delivery, very specific. There is a date range on the standard shipping, and obviously this is a product of the method or the carrier that they're using to ship. Still, if I'm getting free two day shipping why would I even bother with the standard shipping?
Let's take one more look at a potential purchase. In this case what I did is we looked at buying a pair of Ray-Ban sunglasses. This particular retailer is a great retailer, they have a great website. As a matter of fact they're one of the finalists in multi-channel merchants competition for customer experience for this year. They've really focused on getting their operation so they can get two day shipping to all their customers. When I look at this, "Okay, this is pretty good. I see two day shipping, I see that it's free, I see a specific date. Man, this is looking pretty good." Then I look at the date. The date is Thursday, March 16, two day shipping. Today, the day I'm ordering it, is Sunday the 12th. I'm thinking, "Who did this math? How is purchase on the 12th and deliver on the 16th two days? It's not." They may be using two day shipping but I suspect they have a fulfillment problem here. Again, it's the fulfillment experience. You could have a great operation with your carrier but if you can't get your product out the door in a timely fashion then you're going to have an issue.
Once again, I'm shopping around and I go to Amazon. Low and behold, same sunglasses, same price. Oh, free shipping. Not only is two day free shipping there, I can get it one day free shipping. Maybe I don't need the sunglasses 'til next weekend, but which one are you going to order from? My point here is having a look at the total customer experience based on fulfillment can actually drive your top line revenue. It can drive it very nicely if you can position the capabilities appropriately when the customer comes to your product page.
The strategy for fulfillment analytics really starts with understanding the basics of your end to end fulfillment chain. You have to have inventory intelligence, you have to know where your inventory is. You have to have location intelligence. You have to know where your customers are. You have to have good delivery intelligence. You have to know what kinds of service levels you get from the carriers that you're using and the service levels that you've contracted to use through these carriers. When you combine all this information together, you then can create a user experience that does much of what Amazon does.
Amazon throws buyers another bone. "Order this in three hours and you can get it next day." They're very specific in terms of the delivery delivery day and time. They're very specific about the cost right up front. Nothing is hidden. It used to be you could hide some of this stuff, and if you could get somebody into our shopping cart they'd say, "Yeah, okay, I'm going to buy that." No more. If you don't have it up front they're not going to buy. The challenge is to put all this information together.
Analytics Driven Fulfillment
The journey to analytics-driven fulfillment really has three primary steps. It starts with the data. You've got to get lean in terms of your fulfillment operation. By lean I mean not only low cost but highly efficient, highly repeatable, and very predictable in terms of its operation. Things change so fast you have to stay lean with your fulfillment operation.
Let's start with the data. Well, everybody has heard this before. You can't manage what you don't measure. You need to understand the cost and the performance across your entire fulfillment chain. How long does it take you to move from the order to shipping your product? How long does it take from ship to delivery? How reliable are those metrics? You have to understand everything about your carrier. You have to understand your contract, your discounts, you have to understand your dimensional factors, your surcharges. There's lots of detail there. If you're using multiple carriers you've got to be able to normalize that data across those carriers so you have a good picture about what's going on with your delivery. The same thing applies to your inventory placement, what SKUs are where, understanding where your customers are so that you can understand what inventory to pull from and what carrier and what service level to use to deliver to the customer per your commitment.
Then you've got to optimize that fulfillment chain. This has to be driven by the user experience. You have to understand what is expected. Look at your competition, what are they delivering in terms of customer experience? How can you get as close as possible to that same, or exceed, that service level? Look at your service mix. Many retailers I've seen tend to go to UPS or go to FedEx and say, "Here's all my business. Give me a two day air price and give me a ground price." The fact of the matter is, that's insufficient to optimize your operation. You need to be looking at not only what big carriers can offer but you need to look at their hybrid products like Sure Post and Smart Post that are lower cost. It depends on the nature of your product and what your customer's expectations are. Those can be very viable alternatives.
Look directly at US Postal Service. For any of you that have shipments that are routinely under a pound, first class package is a terrific service. No, it doesn't have all the checkpoints that some of the FedEx or UPS has, but it's reliable and it's very, very affordable. Look at regionals. In California we have Golden State Overnight, we have On Track. Other parts of the country have Laser Ship. We have Lone Star Overnight. Where are your fulfillment centers? Can you use some of these guys? Because their rates and their service level is actually better than global carriers in many, many areas. You need to be aware of these things, you need to be able to pull in this data, look at it, compare it. This is how you figure out your service mix.
Lastly, and very, very importantly, there's so much that needs to be done to optimize your fulfillment chain. You can't do it on your own. Very few companies can even do most of it on their own. Amazon doesn't do it on their own. You need to look at partnerships. Partnerships, do you have the data? Can you get the data? If not, partnership. Do you have inventory locations close to your customers? If not, can you afford to put your own in? No? Partnerships. Carriers, obviously you're not delivering your own packages. Partnerships. On and on, partnerships are the way that, in today's world, you're going to be able to compete. Now, importantly on partnerships, you've got to share the strategy. What are your objectives? How are you going about addressing the market and those key customers? Your partners have to understand that fully, thoroughly. Then you have to communicate with them. It's a full time job to liaise with your partners. If you're using a 3PL you can't just hire a 3PL and say, "Oh, they're taking care of it." It won't work. You have to daily communication, you have to have metrics, you have to review those metrics. Otherwise you're not going to control them and you're not going to see the quality that you're expecting from that third party logistics provider.
Then the next step, once you get your improved fulfillment chain in place, is you have to ensure compliance. If you have routing rules, if you have certain standards for which you need to adhere to to get packages out the door, if you have certain standards for reliability with carriers. You've got to keep on top of this. It's changing all the time. It's changing daily. As weird as that sounds, things are changing daily in the ecommerce world. There's some big changes afoot. UPS has announced that they are going to have a regular Saturday delivery capability coming in. What does that mean to your fulfillment and your customers? Got to plan for that.
Then there's some things that are a little bit outside what we think of as fulfillment today. There's a number of companies that are piloting delivery receptacles for residences, both multi-tenant as well as single family homes, that provide for secure delivery, that provide a way for carriers to never have a re-delivery and provide for customers never have to chase down their package. These things are going to be standard in a few years. I think the number I saw recently, 11 million cases of packages being stolen off porches. That's a problem. That's a problem for your customer. If your customer doesn't get your shipment they're not going to be happy. Thinking about how you might interface with these kinds of solutions are quite important.
Finding the competitive advantage is really about addressing the challenges that you face every day by understanding, in detail, everything about your operation. Understanding everything you can about the consumer behavior and the evolving consumer behavior. Looking at the competition. Data, data, data. Understanding what's going on is the foundation of finding the competitive advantage. Then those areas of limitation where you are not able to, within your own organization, solve the problem, meet the challenge, you need to look to partnerships. Again, you've got the share, you're strategizing objectives with partners. True partners want to know that to do the best possible job.
Lastly you have to make sure that those solutions and initiatives are aligned with your overall strategy. It's very difficult to compete with Amazon on a national basis. They don't do exactly the same level of service in every city in the country, but they have a lot of fulfillment centers and a lot of primary, secondary, and even tertiary cities. Competing with them throughout the country is an onerous task. Probably not possible for most of you. However, if you look at your key demand markets and think about whether or not you can ratchet up your service, ratchet up your capabilities in those markets, and then align your strategic partners to focus on those markets, and be good enough to the rest of the country, I think that you will find that you're developing a competitive advantage and can continue to grow your business.
Speaker Bio: Mike Comstock is currently a Senior Advisor to GrandCanals, Inc, an innovative start-up providing the Fulfillment Intelligence Cloud for ecommerce. He is also the co-founder of Ursa Major Associates, LLC, a strategy consulting firm specializing in express, postal and logistics business transformation. Starting with DHL Worldwide Express in its formative days, Mike played a pivotal role in many aspects of the company’s evolution both in the US and globally. He has also held senior positions with Borderlinx, InterSchola and TestMart.
This video comes from our inaugural shipping conference: Shippo Summit. Hundreds of customers, partners and industry experts from around the world joined us in San Francisco for a full day program of inspirational talks and dynamic conversations that explored leveraging shipping as a competitive advantage for ecommerce businesses.
The USPS® and Sonic Eagle Design trademarks are the exclusive property of the United States Postal Service and are used on this site only to refer to goods and services offered by the United States Postal Service. The United States Postal Service name and eagle logo are amongst the many trademarks of the United States Postal Service. Used with permission.
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