Part 2: Cost Widens the Gap—What Stands In the Way of Meeting Customer Demands
What motivates shoppers to make a purchase? What stands in the way of retailers making the right improvements to meet customer demands? Cost.
The problem is two-fold. Whether it’s a customer considering a product on your website or a retailer considering a new B2B solution, the considerations are fundamentally the same. No matter what—when making a purchase—cost is one of the biggest motivators for closing the sale.
Earlier this year, we surveyed 100+ eCommerce retailers on shopping cart abandonment, delivery promise, and fulfillment and logistics costs. You can find the full report here, but in the coming weeks, we’ll be diving deeper into the findings in a three-part blog series, “Breaking Down the Cost of Innovation”:
- Part 1: The Delivery Promise Gap
- Part 2: What Stands in the Way of Meeting Customer Demands
- Part 3: The Cost of Innovation
Selling Has Changed
Consumer? Retailer? The problem is the same. Cost is both a barrier to conversion and innovation. And that’s ok. But for retailers, it’s something to consider when determining how to increase customer acquisition and retention (because that costs money, too).
Every purchase isn’t about price, but it’s certainly a motivator for many. The decision to buy something is based on meeting a direct need or dissatisfaction that a person is facing. That’s it. It’s about bridging a gap between what someone has and wants (or needs)… I don’t have those shoes and I want/deserve them, or I need to do laundry, but am out of detergent.
For retailers, life before the Internet wasn’t easy, but it was easier. A shopper needed something so they came to your store to buy it. For years, experts spent time on store layouts in order to increase basket size and sales, but the biggest obstacle—getting them through your doors—was complete. Selling was about face-to-face customer service—a human interaction.
As more sales move online, that face-to-face interaction that was so critical to sales is decreasing. You can’t force people onto your website. You can try, though—investing in Google Adwords or social marketing. It’s no longer enough to be nearby.
This isn’t a bad thing. In fact, there’s more opportunity than ever. Your consumer profile is no longer tied to proximity— your shoppers could be anywhere… in the world. However, the challenge remains that their interaction with your brand is fairly indirect. You can’t reach out to a shopper and tell them why you have shipping fees. If that’s unsatisfactory to them, they’ll just click out of your site.
Retailers, instead, are faced with the challenge of having to meet customers demands without the touch points that used to be there. You can’t charm your way into a sale. Most of your new customer are online. They’ll never see you, nor you them. It’s transactional. BUT. What you can do is cater to what they expect and want.
Cost Widens the Gap
Industry studies show us that consumer expectations place a lot of weight on your delivery promise. The convenience of online shopping is quickly being matched with near-instant gratification as delivery times become shorter and shorter.
Additionally, free delivery has never been more important to shoppers. In fact, 74% of customers want free shipping and 95% of customer have taken action to qualify for free shipping, including opting for slower ship times.
The problem is offering free, affordable shipping isn’t simple or easy. Most times it isn’t even affordable. 60% of retailers don’t offer fast, free shipping because the outbound costs are too high. How can you build out a network large enough to support customer demands and fulfill orders quickly enough to optimize throughput?
For many, it feels overwhelming, but the harsh reality is that delivery promise (cost x speed) plays such an integral role in your shopping cart abandonment rates and sales numbers that it’s something you have to look at.
Both customers and retailers value cost, but the opportunity that’s being missed by ignoring customer demands for affordable delivery fees is huge. What would your sales numbers look like if you could make shipping free? How many more carts would convert, and how many would turn into loyal customers?
Cost Is a Supply Chain Problem
Every retailer is concerned about cost. Optimizing for costs is a strategic initiative year after year.
Clearly, outbound costs have the biggest impact on purchase decision, but the last mile of delivery is expensive. In fact, the last mile can account for up to 28% of a product’s total transportation cost—that includes warehousing, fulfillment, delivery, and technology.
When you consider what retailers are working with today (1-3 fulfillment centers compared to Amazon’s 250+), then it becomes more obvious as to why outbound costs are so high and intimidating.
Cost Doesn’t Have to Be Your Greatest Downfall
Cost in your supply chain doesn’t have to be your downfall, but traditional solutions won’t cut it. It’s a solvable problem, especially with new technologies, variable cost models, and the cloud.
At the highest level, big data and analytics give retailers access to a ton of data about their consumers, including shopping cart abandonment rates and promotions. The first question to ask is what do your customers care about? Is it fast or free shipping or both?
Based on evolving customer expectations, it’s likely the third—a combination of speed and cost. So from there, what’s required of your supply chain? Do you need more people, more locations, more visibility?
Integrated supply chain solutions that help you shorten the last mile of delivery and reduce outbound costs enable you to act on the data you have and improve your delivery promise.
Today’s solutions provide visibility, they’re scalable, and they provide an unprecedented level of flexibility to your operations.