Free same-day shipping, the new global benchmark for online shopping
Enrique Dans
Senior Advisor for Innovation and Digital Transformation at IE University. Changing education to change the world...
Amazon’s quarterly results, showing a robust $3.6 billion profit, is a demonstration of strength that has left its rivals worried: a company that has spent years reporting systematic losses as it grows has matured into the brand that sets the benchmark in online shopping, the outfit to watch, and that now, in addition, is consistently turning a profit, $3 billion last quarter, and now this.
While its growing profit margin will be of concern to its rivals, more worrying is Amazon’s plans to progressively start offering its Prime customers free one-day shipping, instead of the current two-day standard delivery. This is the logical way to convert the value proposition for those who pay the subscription cost, which recently rose in all markets substantially, and is hard to resist. Many people believe that Prime is, in many ways, Amazon’s best product: it not only generates a high levels of user satisfaction and loyalty, but also increases the amount they spend.
Amazon’s ability to offer its customers an infinite number of products that they can buy at a click from one day to the next makes rivals like Walmart or Target dizzy, and their share prices fell immediately on Friday after the announcement: developing a logistics delivery system from one day to the next is complex and expensive, requiring an extensive capillary network of warehouses and a very powerful distribution from them to the last mile. In that sense, Amazon’s advances in creating a highly dependable and flexible network through Amazon Flex are not easy to replicate and give it an important competitive advantage.
Of concern to Amazon should be the ability of the Chinese giants of electronic commerce, which began by copying its model, to now offer same-day shipment: JD.com delivers 90% of its shipments in China within 24 hours, including 85% of those that come from abroad, thanks to fully integrated logistics from the warehouse to the customer. Alibaba has already announced it will offer same-day service throughout China.
Logistics is key to development of a country, and it would be simplistic to believe that competitors could immediately apply the expertise acquired in China to other markets where they would lack the strategic leverage, strength or access to non-conflictive labor they have in China. The human resource problems Amazon has created in many markets show this. That Amazon, seen as the leader that sets the benchmark in online shopping around the world, is already behind China’s biggest players in a field as important as logistics should give a lot people pause for thought.
(En espa?ol, aquí)
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