How Logistics Technology Can Help Ecommerce Companies Clean up Their 'CRaP'
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Every company has them: cheap, often bulky products whose shipping costs make it impossible to make money off them. At one time, Amazon carried many, many products that it shipped at a loss in order to maintain its status as the go-to place for everything from books to laundry detergent.
In short, Amazon prioritzed market expansion over profits. Those days are over.
An article in the Wall Street Journal in late 2018 detailed Amazon’s efforts to address unprofitable products. In the Journal article, Amazon itself charaterized these products as "cutting the CRaP" (can’t realize a profit). The retail giant also talked about ways to try to address the problem -- like changing the packaging and quantity of these products and making the issue someone else’s problem (read: supplier) whenever possible.
For example, at Amazon’s request, the Smartwater package available via the retailer's Dash service changed from a six pack, which cost $6.99, to a $37.20 pack of 24 bottles, raising the per-bottle price from $1.17 to $1.55. This change helped cover more of Amazon’s shipping costs.
In the same way, every company should try to identify and get rid of its own “CRaP.” Because delivery expenses often make the difference between turning a profit or not, logistics technology can help online merchants address profit margin-challenged products without necessarily getting rid of them altogether.
The key is to use logistics technology that shapes customers’ delivery options so they can still choose superior service but do so at a lower cost. Here are three delivery-shaping strategies to help turn your own CRaP into gold:
Offer customers more profitable delivery choices based on their own needs.
Your customers aren’t all the same; so offer a variety of delivery options to help drive profitability and let them self-select. There is no reason to have every product, especially unprofitable ones, receive the same service level that your money-makers do.
So incentize customers to take more profitable delivery options and increase your margins. Amazon is already doing this. Recently, I was buying a small, inexpensive item on Amazon. It cost $7.99 and could fit in the palm of my hand. Since I am an Amazon Prime member, my access to free two-day shipping appeared on screen when I checked out, along with another delivery option that would give me $1 off another purchase if I waited 10 days to receive the item.
Some customers will pay more for fast, convenient deliveries while others want the cheapest way possible, including that $1 credit with the slower delivery time. As long as customers have choices, they will be happy to self-select. Using dynamic booking during the buying process will allow your company to tailor delivery options based on the customer and the products he or she is buying.
Use logistics technology to change delivery options in real time to ones that are more profitable.
It's possible to give customers better delivery options and still see them bring profit to your company. But by using logistics technology, retailers can view different delivery modes under a single transportation platform for all deliveries. Then they can make delivery choices according to the new orders coming in to a specific area, and understand which orders are already headed there.
For example, not all next-day, two-hour window deliveries have the same delivery cost. So, why not give the customer the two-hour option with the lowest cost to you?
If you already know that your delivery truck will be in the customer’s area from 2 p.m. to 4 p.m., why not offer a 4 p.m. delivery window instead of the one at 10 a.m., when your trucks won’t be in the same area? Customers are more willing to take the first option that offers predictable, time-definite deliveries rather than to opt for speed. So, start with the options that make you the most money.
For many customers, a missed delivery notice is more frustrating than a quicker delivery with an unpredictable delivery time. Again, dynamic booking provides the ability to score delivery options based upon existing orders and give customers options that drive up delivery density -- which in turn drives down costs.
Take an Omni-channel approach to parcel and freight delivery.
The key is to consolidate customer orders across all your delivery channels. Many retailers have multiple channels for home delivery including private and dedicated fleets, LTL, regional couriers, supplier, etc. These same retailers also offer a wide array of goods: large and small format.
While companies may have pre-defined and segmented delivery options based upon product size, these may not be considered in parallel with delivery location. For example, a large-format product (e.g., a TV) being delivered by a two-person dedicated carrier might also include a smaller delivery good (e.g., an iPad) that was purchased separately but is going to the same home.
This eliminates parcel shipping costs and may reduce the days to deliver. By evaluating all options for new orders based upon existing orders for all delivery services, companies can drive down shipping costs. And, as an added bonus, there are these survey results by Digital Commerce 360: 71 percent of customers it polled who were concerned about the environmental impact of their online purchase said they'd prefer consolidated delivery of multiple orders.
Retailers such as U.K.-based Ocado even go as far as offering “green” or environmentally friendly delivery times (featuring, for instance, a "green" truck indicator on their websites). A green truck is one that will already be in your area on a particular day at a particular time, reducing carbon emissions -- and operating costs.
According to Ocado, many customers gladly “do their part” for the environment, which in turn helps lower the company's operating costs.
If more ecommerce companies followed suit with Amazon's solution and dealt with their own CRaP by addressing their profit killers, more of those merchants would be profitable. Logistics and logistics technology can play a prominent role in helping drive costs down and margins up.
Ultimately, too, companies that proactively use logistics strategies and technologies that shape customer delivery behavior will have more tools to help turn their “CRaP” into gold.