Article
Americans won't pay for same-day delivery ... or will they?
New research reinforces the premise that online shoppers expect free shipping.
March 21, 2013
The following is an excerpt from a recent conversation on RetailWire, reproduced here with kind permission.
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, are 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 includes same-day delivery is too good to turn down?
A big rumor 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 recently 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.
RetailWire BrainTrust comments:
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. - Dick Seesel, Principal, Retailing In Focus LLC
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 forgotten 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. - Paula Rosenblum, Managing Partner, RSR Research
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. Ten-dollar delivery will probably be the norm, and some folks will be willing to pay for the service. - Tony Orlando, Owner, Tony O's Supermarket & Catering
(Photo by Lord Enfield.)
