In the race to achieve the “instant” home delivery, one company is incentivizing customers to slow down their delivery speed by giving them a discount: Amazon. Yes, Amazon, the same one that made 2-day delivery a standard service (with Prime) and has had numerous announcements recently about grocery deliveries in hours. If immediacy is such a big deal and Amazon has been the vanguard of fast, why would they do it? Because some of their products cost too much to deliver relative to the revenue they receive from the product. While Amazon has changed the game in delivery, it is also recognizing that it needs to offer options that don’t crush the bottom line. Delivery success is not just about choice—it’s about profitable choice and that lesson applies to B2B as well as B2C businesses.
Nothing like reality to prove a point. Recently, I was buying a small, inexpensive item on Amazon. It cost $7.99 and could fit in the palm of my hand. Since I am an Amazon Prime member, the free 2-day shipping appeared when checking out ALONG with another delivery option that would give me $1.00 off another purchase if I waited 10 days to receive the item. It’s not too hard to do the math that a 2-day shipment of something that cost 8 bucks and weighed a couple of ounces is a loss leader. For those of you who pay for Amazon Prime like me, you might say that Amazon Prime covered the shipping cost, but apparently not enough in my case.
Needless to say, I opted for the 2-day delivery, but I am sure others would have taken the buck and waited over a week to get their stuff. That’s the real story here. Amazon recognized that there are different kinds of customers and, just like we segment customer based upon buying patterns, we need to understand their delivery segmentation. Not only can delivery costs be lowered, but there is a significant opportunity to gain revenue with the right segmentation strategy. The following chart is a simple way to understand how to think about customer delivery segmentation based upon the speed and precision (time window) of the delivery.
Source: Descartes
Based on benchmarking retailers and distributors strategies and tactics over the last several years at Descartes, I identified four basic customer delivery preferences. None of them is better than the other and they all don’t apply in every instance; however, some combination will provide the right balance of service, cost and even incremental revenue.
Cost, Cost, Cost: This is a pretty self-explanatory delivery choice. These customers are extremely cost-sensitive and will take the slowest delivery service if it saves them money. They are willing to wait days for the product and care less when the delivery will arrive during the day.
Parcel Mentality: Typical parcel deliveries are fast, but not necessarily time definite at the point of purchase. The majority of goods such as apparel and other smaller items are delivered this way. These customers are happy with the fast delivery cycle and don’t care if the package is left at the door step sometime during the day.
Convenience Matters: Many large format items fit into this category. These customers don’t value fast; they value a tight time window. For instance, when I renovated my kitchen, I purchased five appliances, but didn’t want them delivered the next day because they would have taken up half my garage for five weeks until the kitchen was ready for them. Instead, I wanted them on a specific date and time when my contractor said he was ready to install the appliances.
Time Is Their Currency: There is a class of customers who are cash rich and time poor, or spend a lot of money if the goods aren’t delivered in a tight timeframe. They want their delivery ASAP and won’t sit around waiting all day for it. This can be high-value impulse purchase goods, replacement items or even building materials for example. These folks are also most likely to pay for the privilege and it doesn’t take too many of them to offset a lot of the overall delivery costs.
Don’t get fooled by the delivery hype that still exists in the market. I see studies that highlight that consumers want more free and speedy deliveries. It is somewhat true, but incorrectly skewed by poor questions such as “Would you be more willing to buy from a retailer if they had free and fast delivery?” Who would say no to that question? Unfortunately, it fails to understand the delivery segmentation that really exists and misses the opportunity to diversify delivery options and put more on the bottom line. What is your company doing to segment its customer delivery strategy? Let me know.
