Shipping costs have traditionally been considered an expense for the buyer to bear. In consumer markets, this presumption has been abandoned. In the wake of the pandemic, the shift to delivery from in-store purchases has proven persistent and free delivery has become commonplace. Amazon broke new ground with its Prime membership, including free shipping as a perk.
Businesses, especially small ones, have adopted consumer behaviors, especially when it comes to inexpensive, lightweight, ready-to-use products such as office supplies. And B2B sellers have started taking inspiration from the consumer market.
Marc LavelleCEO of X Delivery, shared information about his company’s recent research into the added value of shipping in e-commerce in a recent interview with Karen Webster of PYMNTS. The forum was a Fireside Chat during the FreightWaves and PYMNTS Supply Chain Meets FinTech Virtual Conference.
“Stop viewing shipping as a cost center and think about it to improve the brand experience. And if you don’t believe it, just listen to your customer who tells you,” Lavelle said. What is the product and how much it costs is important, but equally important is knowing when I get it and how I get it. And that’s the message we continue to reiterate when talking to people in the industry.
“Free” has its costs
When considering improving the brand experience with shipping, several options can be evaluated.
One is free shipping. However, free is not always free, and it tends to be qualified in several ways in practice: first, the dollar amount of the basket must exceed a certain threshold; second, the actual price tends to translate over time.
“We are in this environment where you have fast and very expensive, or free but really slow. The slowest available delivery method is offered at no additional cost,” LaVelle said. “Expedited ground shipping is free, and it can take five to 11 or 12 days from the time you order the product. The next phase is to offer a form of expedited shipping. In these, buyers pay a premium for delivery within one, two or three days.
LaVelle cites research that shows consumers are willing to pay up to $7 per order for expedited shipping without significantly affecting the price elasticity of demand.
His company helps companies deliver quickly at this price by pooling unused air freight capacity for the middle mile of shipping routes and coordinating with last mile carriers. It also claims that offering more shipping options reduces cart abandonment. Plus, he says keeping customers updated on the progress of their packages builds a stronger relationship.
With the supply chain still struggling, companies are often willing to pay extra for faster delivery, or even engage in bidding wars to get their containers on ships.
Lavelle also said companies with higher margins have a greater ability to offer free shipping by bundling standard shipping costs into their prices. This also applies to businesses that sell to other businesses, but works against more sophisticated buyers who want to break down offers by item.
Make it happen
Companies like X Delivery orchestrate delivery from the first to the last mile. Along with this, they also orchestrate the flow of funds.
“You manage payments to sometimes five or six different suppliers who do this and you reconcile with the brand. This is usually done on commercial terms ranging from zero to 15-30 days. It is a lower margin business than, for example, software or some payment companies. So having a timeline and timeliness of payments is very important to keep the business running,” according to LaVelle.
This is accomplished with APIs to recognize timestamps, package weight, and cost to facilitate rapid real-time reconciliation as close as possible.
Prompt and transparent billing is integral to network efficiency as well as transparency and efficient delivery from the sender’s and receiver’s perspective, and is what it takes to close the sale at the digital age.
“Getting our partners paid is just as important as us getting paid,” Lavelle said.
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