Free vs. fast delivery: Where do you go from here?

December 18, 2019

3 steps to determine the right delivery offering for your customers and your business.

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Q4 is here. This year, Black Friday / Cyber Monday (BFCM) sales ran longer than usual and eCommerce sales reached an all-time high. With eCommerce is on the up and up, delivery methods are more important than ever before. But how do you determine what’s the right delivery promise to offer?

Key Takeaways

  • Know your customers
  • Meet baseline delivery requirements
  • Go beyond fast and free

3 steps to determining the right delivery offering #

1.) Understand your customers #

Customer expectations around delivery speed and cost are constantly changing (thanks, Amazon). But, not every business can offer same, one-, or two-day delivery, and not every business should.

When it comes to what matters most, Deloitte found that 88% of consumers prefer free shipping over fast shipping. And yet, in our 2019 eCommerce Fulfillment and Logistics survey, retailers said they think it’s equally important to offer both free (63%) and fast (64%) shipping, but were optimizing for fast shipping over free. Indicating there’s a gap between what customers want and what retailers are providing them.

Almost all respondents were offering either same- (20%), next- (59%), or two- (74%) day shipping, but usually for an additional price. Only at 3-5 days did the majority of retailers start offering free options at longer delivery times, see chart below.

2.) Meet the baseline requirements #

If free shipping is more important to most consumers than fast shipping, the question then becomes, “How long will customers wait for free shipping?”

A report from AlixPartners found that the maximum delivery time that shoppers were willing to wait for free shipping was, on average, 4.5 days. But that number becomes even shorter if a customer is an Amazon Prime member. They expect their free deliveries to arrive within a maximum of 3.8 days.

If you can’t meet these minimum requirements, you risk losing customers. The Baymard Institute found that the number one reason shopping carts are abandoned during checkout is because extra costs (shipping, taxes, fees) are too high (53%), and another 16% of consumers abandon because delivery times are too slow.

3.) Compete on convenience #

Beyond just free, fast delivery, how can you compete? eCommerce is the fastest-growing retail channel, so it is important to improve delivery times and costs. However, it’s not your only selling point with customers.

Earlier this year, we released the Flexe 2019 eCommerce Fulfillment and Logistics report in which we surveyed 200+ retailers and brands.

Customers want options. It’s apparent from the spread of sales amongst our surveyed retailers that customers are buying across a variety of channels. Brick-and-mortar stores are still the largest single sales channel, making up 64% of sales. But, eCommerce are making up a substantial number of sales, and likely influencing far more.

A Salesforce study found that 87% of consumers start their product searches online, but 46% of shoppers prefer to buy in-store. Sales channels need to be connected in order to provide consumers with the best experience. A BRP study found that 73% of consumers want the ability to track orders across all points of interaction, but only 7% of retailers currently provide it.

Confirming this, our study found that only 10% of surveyed retailers and brands offer buy-online-pick-up-in-store options, despite the National Retail Federation’s findings that 65% of those who have tried BOPIS say that it improved their shopping experience.

For businesses struggling to match Amazon’s delivery promise, or who are looking for a way to further differentiate, connected commerce and omnichannel options are a great place to start. They are hugely important to customers, and fewer businesses are managing to do it well.

How to get there: On-demand warehousing and fulfillment #

Meeting baseline expectations around fast and free delivery comes down to your logistics network. The last mile, or the distance goods travel from the warehouse to the final destination, impacts outbound costs. According to Flexe eCommerce report, 53% of retailers don’t offer free shipping because outbound costs are too high and 37% don’t offer 1-2 day shipping because of it.

Some of the limitations retailers face are fixed warehousing infrastructure and small network sizes. The majority (74%) of Flexe survey respondents said they only have 1-3 fulfillment centers in their distribution network. With a network of that size, getting your goods close enough to your customers to reduce costs is nearly impossible.

Luckily, new logistics services like on-demand warehousing and fulfillment can help. On-demand warehousing gives retailers a flexible, variable-cost model for adding warehousing and fulfillment nodes to their distribution network. With a flexible fulfillment solution, it becomes much simpler (and faster) to scale logistics networks and position inventory closer to customers to both shorten shorten delivery times and cut last-mile transportation costs (for fast, affordable delivery).

The road ahead is only getting more complex #

Retailers are faced with very real challenges when it comes to succeeding in today’s landscape. From our data alone we found that 46% of respondents said Q4 is their busiest season, but 49% have more than three promotional periods a year and 30% said those sales last more than a week. That requires a lot of planning—for both in-store and online sales. Additionally, 53% say inventory management is one of the greatest challenges during promotional periods.

eCommerce is growing 15% year over year, while brick-and-mortar remains the largest channel, with 87% of all consumer spending in the U.S. still occurring offline.

Additionally, retailers and brands are under a lot of pressure: Sell on all channels, be everywhere, have competitive delivery options, incentivize your customers to be loyal. Not to mention, the everyday complexity of logistics like managing tariffs, battling a tight real estate market, and unpredictable weather events.

So, where do you go from here?

Thankfully, not all is lost. Solutions like on-demand warehousing can help you create flexibility in your supply chain so you can expand your fulfillment footprint, and plan for the unexpected.

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