Customers and distributors demand good tech experiences
By Stephanie Ramirez
While 15 percent of IR’s Top 1000 online companies offer completely free shipping on all orders, conditional free shipping is far more common, and offered by 55 percent of companies.
In the age of free shipping, many direct sellers are making frequent adjustments to their fulfillment strategies in order to compete and keep consumers coming back. Beyond that, they are employing unique methods to not only meet consumer demand but work within their margin structure.
Perfectly Posh, a direct seller of self-care and pampering products, made the switch four years ago from in-house shipping to using a fulfillment center, mainly so it could leverage the optimization and flexibility that using a professional organization provides, says COO Jonée Woodard.
“It’s very difficult to scale up for the highs and scale down for the lows when managing shipping in-house,” she says. “For us, using the fulfillment company has reduced time in transit, reduced shipping costs, and improved delivery accuracy.”
Woodard says Perfectly Posh uses what she calls a bi-coastal model for shipping. In order to provide consistency in shipping costs and delivery time, it ships products to two separate warehouses under the management of its fulfillment company.
“I don’t want to be shipping to Florida or North Carolina from Salt Lake City,” says Woodard. “It’s just not optimized. We have a higher percentage of consumers and influencers on the East Coast, so we also ship from a warehouse on the East Coast, and that helps reduce the number of stops a package makes.”
Perfectly Posh has already planned for scaling, and in order to keep its shipping rates low and time in transit down, Woodard says the company has developed an operations system such that it can easily and rather swiftly add additional fulfillment centers as needed to its current strategy.
“We have to maintain cost effectiveness,” says Woodard. “We have a variety of different shipping methods that we utilize to reduce costs wherever we can. We have set up our ERP system so we can plug in fulfillment centers as needed. We do directed warehouse shipping, meaning my order management system (OMS) directs the order to a fulfillment location based on where it’s going.”
Woodard admits that the company is not immune to the “Amazon Effect,” but they choose to focus on options for the best customer experience. Perfectly Posh now offers two options for shipping, allowing consumers to choose. One option allows multiple items to be shipped at one low price point and can take up to 7 days in transit. A newly added flat-rate option provides two-day transit for a few dollars more.
“There’s no question that Amazon is a disruptor in the marketplace, but we have made a commitment to our consumers to offer a subsidized rate that clearly does not cover 100 percent of the cost,” adds Woodard. “It averages out, but we have to monitor that average very closely. The devil is in the details and managing that.”
While some organizations view shipping as a necessary evil, Perfectly Posh views fulfillment and shipping as its only direct contact with its consumers, and the company cherishes that opportunity, says Woodard.
Leveraging Volume Brings Benefits
While a single company may pale in comparison to Amazon, in terms of volume and carrier discounts, leveraging the volume that a fulfillment company can provide can be a real benefit, according Mike Christensen, a senior sales executive at Salt Lake City-based Visible Supply Chain Management.
“The biggest benefit to our direct selling clients is our volume, our shipping rates, and the strength and power with all the different carriers,” says Christensen. “We currently ship about 170 million parcels a year and our relationships with the carriers are strong. We are able to leverage all the volume we have to spread it out over all the different carriers we work with, and we leverage the discounts from all carriers and pass them on to our clients.”
While Visible will never be as large as Amazon in terms of volume, according to Christensen, he says the company’s model is set up the same way.
“Amazon is carrier agnostic,” adds Christensen. “Their model is all about optimization. They optimize locations, and they optimize carriers. We’ve essentially done the same thing. We have six warehouses throughout the country, and we optimize our locations and we use all the different carriers.”
The difference lies in the customer experience, according to Christensen. With Amazon someone may order three items and get three different large boxes, but direct selling companies handle that contact uniquely with a cohesive presentation. “We know our clients’ customers are going on Facebook Live to do box openings, and that customer experience just doesn’t happen with Amazon,” he says.
Conditional Free Shipping
While companies scramble to meet consumer demand and find creative ways to manage fulfillment, someone has to pay the cost of shipping. If customers or the company aren’t footing the bill, then it’s typically built into the cost of the product, according to research recently commissioned by shipping company FedEx and conducted by industry research firm Internet Retailer (IR).
Additionally, IR looked at both sides of the equation, asking consumers what they wanted by surveying 969 online shoppers, and analyzing the Top 1000 ranking of North American retailers by web sales. Interestingly, fewer than 15 percent of the Top 1000 online companies offer unconditional free shipping.
When Ami Wellness, a new company offering plant-based medicinals, was considering what model to go with Ami chose the Shopify platform to start, which allows the company to offer free shipping at a certain dollar threshold.
“Our decision was an easier one than some other businesses, based on the fact that the size of our products are small,” says founder Triniti Gawthrop. “Offering free shipping doesn’t have a huge impact on our margin.”
Ami Wellness launched just three months ago, and Gawthrop says the company is still playing with conditional shipping models and continuing to do A, B and C testing through digital marketing campaigns—offering varying levels of discounts and order minimums to see what consumers respond to. She said it’s been quite fascinating to learn how perceived value causes consumers to respond differently with varying minimum price points.
Ami Wellness also ships its products in-house as the company is very particular about how products are packaged and what’s included inside each shipment. But in order to remain profitable and offer conditional free shipping over the long haul, Ami Wellness has chosen a unique shipping model, according to Gawthrop. Whereas with a fulfillment center, companies share warehouse space, Ami Wellness is simply leveraging existing shipping accounts with another more established brand with higher shipping volumes.
“We are not actually sharing warehouse space, but rather shipping accounts, so the [carriers] can extend us the same discounts,” said Gawthrop. “We don’t have the volume to qualify for those discounts, but we leveraged the volume of a sister company and that shipping history to allow the [carriers] to create a new account that’s specific to Ami Wellness.”
Free Shipping No Longer ‘Table Stakes’
While 15 percent of IR’s Top 1000 online companies offer completely free shipping on all orders, conditional free shipping is far more common and offered by 55 percent, according to the firm’s research. Another 30 percent of companies offer no free shipping at all.
The types of thresholds for conditional free shipping can vary considerably, from dollar thresholds such as what Ami Wellness offers, to joining a loyalty program, to paying a monthly or annual fee (Amazon Prime), to any type of time-based promotional offer.
Minimum dollar-threshold amounts can also vary by type of product sold, according to the IR research. Apparel and accessories such as jewelry require a $99 median minimum order while health and beauty requires a $50 median minimum.
Amazon’s shipping model may not be as fearsome as once believed. Making a business decision based on customer needs, unique products and the competitive landscape appears to be the winning strategy.
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