Issue Date: March/April 2012, Posted On: 4/10/2012
When Free Shipping Is Not Enough By Mark Magill
The online retail industry passed the $200 billion mark in the 2011 revenue estimates released last month. Projections show it will grow by another 60% in the next five years and cross the $300 billion threshold by 2016. These are staggering figures when you consider that e-Commerce still only comprises about seven percent of retail sales.
This has had a profound impact on the parcel delivery market. An industry once dominated by the commercial segment has been inundated by business to consumer deliveries. At last count, it had exceeded 40% of all shipments and it is relentlessly approaching the halfway point. The fiercely competitive e-Commerce landscape has caused free shipping to become an almost standard offering on most websites. This has caused the volume of postal consolidators to spike up sharply because they are the lowest cost shipping method. But what are your alternatives when free shipping is not enough to satisfy the demands of your customers?
The seven to 10 day delivery commitment offered by postal consolidators may be a satisfactory option for inexpensive items ordered online (sometimes humorously referred to as “cheap and cheerful’). But what are the realities when your customer is ordering an expensive piece of apparel like a $700 leather jacket? Is it worth the risk of buyer’s remorse with that type of high margin item? And what about the risk of shopping cart abandonment if they need the apparel for a special occasion and balk at the high cost of the express shipping option on your website? These issues become even more critical when dealing with the Generation Y/Millennial consumers who have an expectation of rapid delivery without being willing to pay extra for it.
However, there are viable solutions to these issues in major metropolitan areas of the United States. To gain a sharper insight into these solutions, let’s first examine the term Mega-region.
What’s a Mega-Region? A Mega-region is a geographical area where a large portion of the US population is concentrated. A good example of this is the Boston-New York-Washington Corridor. It is home to more than 50 million people and over 18% percent of the US population. Other examples are:
• The Texas Triangle
• The Phoenix Sunbelt
• The Great Lakes
• The Front Range of Colorado and
• Southern California.
The population of these Mega-regions totals nearly 200 million consumers and the overwhelming majority of e-Commerce deliveries are shipped to them. If you would like more details, an Internet search of Mega-regions will provide you with full color maps of their locations.
The solution to your faster time in transit requirements are the regional parcel carriers that are located in most Mega-regions. These carriers have a next-day Ground delivery footprint that is much larger than that of UPS and FedEx. They offer guaranteed next-day delivery to Zone 4 destinations as far as 800 miles from point of origin. For example, with a distribution center in the Boston area, you could provide your customers with next-day delivery to Philadelphia, with a distribution facility located in Minneapolis your customers in Chicago would receive next day delivery and with a distribution center in Reno, you can offer next day delivery to Seattle or Phoenix. The best part about it is that the deliveries would be performed at Ground rates. This makes free shipping with faster time in transit a much more cost effective advantage to offer to your customers.
Last year I had an in-depth conversation about online delivery needs with the vice president of a very large e-Commerce company. When I asked him his opinion about regional parcel carriers, he mentioned that the regional carriers should talk about nothing but time in transit because it has become such a competitive factor. The largest Internet retailers are continually raising the bar with faster deliveries. Not every company can afford to locate a distribution center in every state, but every company that wants to remain competitive can strategically place two distribution centers in the most effective locations to take advantage of the faster time in transit that the regional parcel carriers provide.