Americans Won’t Pay For Same-Day Delivery, Or Will They?
There are a number of companies (Amazon, eBay, Google, Instacart, Postmates, Shutl, Walmart, Zipments, etc.) tinkering around with same-day — in some cases same-hour — delivery in the U.S. Obviously, management at each of these businesses believe there is a market opportunity in the service even though the primary reason people abandon their shopping carts online, according to numerous studies, is because they don’t want to pay anything for shipping.
New research from The Boston Consulting Group (BCG) reinforces the premise that there’s an expectation of free shipping. Nearly three in four people in a survey of 1,500 U.S. consumers listed free delivery as the top factor in their decision to purchase. Number two was lower prices (50 percent) and only nine percent cited same-day delivery as the most important factor in choosing where to buy online.
One potential demographic opportunity, according to BCG, were consumers between 18 and 34 with household incomes above $150,000 living in urban areas. These "affluent millennials" represent about two percent of the U.S. retailing market.
"Same-day delivery will be a niche service in the near future," said Rob Souza, a partner at BCG, in a statement. "Retailers may choose to offer it to build customer loyalty, enhance brand awareness, or keep up with the competition. But it is unlikely to generate significant revenues for either retailers or carriers."
Affluent millennials are willing to pay up to $10 to have items they order online delivered on the same day. BCG estimates the market for same-day deliveries at between $425 million and $850 million.
The one thing that BCG’s research and other studies have made clear is that Americans are looking for deals. So, what if an offer that included same-day delivery was too good to turn down?
The big rumor this week is that Google is getting ready to introduce its answer to Amazon Prime, Amazon.com’s annual subscription program that provides shoppers with free two-day delivery on all orders. The planned Google Shopping Express, according to TechCrunch, will offer same-day delivery from major brick and mortar stores for an annual fee between $10 and $15 cheaper than that paid by Prime members.
Another report by NDTV Gadgets claims Google has already begun testing the service using third-party couriers to pick up products from stores and make deliveries to consumers.
RetailWire spoke last week with Tom Allason, CEO of Shutl, which also uses courier services to handle pick-up and deliveries. Mr. Allason told RetailWire consumers who go to a retailer’s online site can choose the "now" option for same-day delivery. In some cases, retailers partially or completely underwrite the cost of the delivery, helping to overcome the objection to paying for deliveries. The company is launching its service this month in Chicago, New York and San Francisco with plans to open in 17 other cities in the U.S. and Canada.
Discussion Questions
What will it take for large numbers of Americans to go for same-day delivery? Do you see any of the current ventures or tests as a potential game changer?
Free shipping became an early battlefield for e-commerce. Then it was free shipping on returns, free two-day shipping, and so forth. It’s not hard to see how companies with the scale of Amazon or Walmart turn free same-day delivery into another battlefield. Otherwise it’s hard to see the “lift” from this service tactic vs. simply shopping at a bricks-and-mortar store.
Boy, this must be a hot topic. I’ve seen the same question in a variety of media over the past 2 days.
I think there’s a market for same day delivery, but it’s small and very niche. I “got it” when I was in NYC in January and was introduced to eBay Now. If I’m on a business trip, and either break something, have lost luggage, or forgot something important, it’d be great to order things on-line and have them delivered to my hotel. At that point, my time is worth more than the delivery charge. This is true for other, relatively affluent, but time-starved consumers.
Apart from that, I would say “that’s why God made stores” and that’s that. The holy grail of same day delivery is groceries of course, but I am still not convinced it’s possible to make money at it.
Same-day will not be for everybody, however, there will indeed be a market for same-day delivery. The same-day delivery will be very successful provided the upcharges do not get egregious. Lots of products, and lots of gifts, I might add, are needed “today.” We are a very busy culture that often cannot plan ahead in time to “wait.”
If the companies selling the goods can be priced the same as the B&M stores, plus deliver it for free the same day, then you’re talking Big Sales. The reality is that making a profit needs to come into play somewhere, and with razor thin margins on most purchases, I don’t see a bottom line for the venture.
$10 delivery will probably be the norm, and some folks will be willing to pay for the service.
By the way, is free really free? Just asking.
The way to get consumers to go for same-day delivery is to make it free. Otherwise, it will be a convenience that consumers will be willing to pay for if they absolutely need an item the same day. Retailers have to determine the tipping point where the cost of same-day shipping meets the immediate need for a product, in an economic model that does not cause the retailer to lose money on every order.
It all comes down to price. For same day shipping to become a factor, the price needs to become low enough to not be considered an issue. Rob Souza has it right; it will be a niche market not only for the consumers that will use the service, but also for the items.
For larger ticket items where the cost of delivery will make up a small portion of the overall price and the item might be hard to handle (e.g. TV, microwave), consumers will be prepared to overcome their disdain for paying for delivery.
Just like the retail industry needs to apply loyalty best practices from the airline and hospitality industries, retail also needs to learn from one of its own: florists. They have been executing same-day delivery for decades (as have pizza stores, etc.). We need to think about what aspects of those businesses are transferable to online and offline retailers of non-food products. That will make the whole same-day delivery challenge less daunting.
I do see this as a game changer in the next 12-18 months in the US, especially. We have no patience or attention span.
From a business model perspective, same-day delivery works best in population-dense areas. The seller can fulfill numerous orders economically, because the drop points are clustered. From the shopper’s perspective, same-day delivery works for those who have more money than time—including many urban workers.
Sure, there is opportunity for C and D County delivery, but offering the “same-day” feature gets a bit pricier and the speed is usually less worthwhile for fast-turn goods.
I’m with Paula (as usual) on this one. I am not sold that most consumers really care about same-day delivery. I too think it is a niche market, but will not sway the consumer to one brand versus another, except when they are in that niche. Retailers should make the option available but the idea of providing the service for free does not make good business sense to me. IMHO
We all realize we are paying something for the benefit of “free.” If we need something that badly today, we are going to agree to pay something to get it today. If not, then we will accept “free” tomorrow. This is a battle front that will not quickly disappear.
Free is one of the most powerful words in our language. I am sure we have all heard the phrase “If it’s free, it’s for me.” I assume the economics for most items don’t work for them to be shipped same day for free so now we start looking at what it is, who is buying it, why are they buying it, when do they need it by, etc. Using these questions people will make a determination if the cost is worth the time saved.
The courier and carrier industries have made fortunes getting tons of paper from here to there. A gathering of electronic security, authentication and integrity capabilities have reduced the need for both package service and paper. The shrinking of a once sizable market has ignited a search for how to expand into other venues to stabilize a downward trend and begin growth anew.
E-commerce and the unexpected double digit yearly growth now is seen as a savior for this ravaged industry. If I was in the decision room I would seek to increase the range of objects that I could provide reasonable delivery services for the public. Knowing that most of the people buying on the NET are looking for price and not interested in where the products come from being able to bring large objects from a long distance or to a remote location within the markets willingness to pay might bring some new market revenue. This just seems more promising a marketing plan than same-day sandwiches.
“Same-day delivery failed during the dot-com era, when e-commerce was still in its infancy. BCG’s survey suggests that consumer needs have not changed much.”
End of discussion. On a side note, I find the survey results cited hard to believe (even given that people often don’t do what they say, and some people aren’t very bright): are we to believe that 3/4 of people are so star-struck by the phrase “free delivery” that they don’t worry about the total price when buying something? That they would choose $86.95 with free delivery over $69.95 with a $10 delivery charge? At times like this, I don’t have much faith in the future.
Same day delivery will only cost retailers money unless the item purchased has a price point above $200. The reason is simple; the cost of same day for low volume is very expensive. It is even higher than the difference between warehouse and direct store delivery. There is a very small segment that is so time-starved that they will pay for this service and only for certain things. This just adds an exception to the normal process. Each exception adds cost to the total process as well. Net net much will be written but as a major service don’t expect much.
I think the market for same day delivery extends beyond affluent Millennials. I have seen retailers in UK working towards not just-now delivery, but anywhere delivery. So if you plan to be at the train station in next couple of hours you can get the order delivered there, so it’s beyond now, it’s now and wherever you are.
My gut feel is that “same day” delivery, or even next day delivery, is not a deal breaker. There is a cost to this, and if it is passed on to all buyers whether they want it or not, it could be a negative for sellers. USPS, etc. have a significant price premium for next day delivery vs. 2 or 3 day delivery.