The face of shipping is changing. Recently, Amazon announced its “anticipatory shipping” patent, which would allow the company to initiate the shipping process before customers even click to purchase. Additionally, an Internet retailer poll showed that 17.6 percent of retailers plan to institute free returns in the coming year and 12.7 percent plan to create buy online/pickup in-store programs.
Customers are demanding these changes and retailers are beginning to deliver. While reducing shipping costs was once retailers’ ultimate goal, that mindset is shifting to place higher importance on the user experience. With e-commerce pioneers like Amazon and Zappos leading the way, more and more e-retailers are doing whatever they can to improve customer experiences through shipping.
Retailers would rather avoid returns, but they are realizing that, by making the returns process easy, consumers are willing to spend more and take chances on additional purchases. Soaring customer acquisition costs incentivize retailers to quickly convert first-time buyers into loyal (and active) repeat customers. Speed of delivery and easy return policies encourage return visits and drive additional revenues for e-commerce brands.
But these changes require a logistics and fulfillment provider that can properly manage extra shipments. Before choosing to implement free returns, in-store pickup and anticipatory shipping, retailers need to understand the implications these policies would have on their third-party logistics providers (3PLs).
Free return policies obviously generate higher rates of returns. But they also encourage product trials—customers would buy additional items they would not previously consider, increasing the average cart size. For example, a customer who never tried a particular style of pants may be more willing to make a purchase knowing there is no penalty to return the pants if they don’t fit, or if the customer simply doesn’t like the way they look when they arrive on his or her doorstep. A 3PL needs to have the infrastructure to manage more inbound returns, as well as the increased activity of outbound orders. This includes dedicating space for excess orders, return stations and computers at each station to quickly record each item’s progress through the warehouse.
A pickup in-store policy has multiple benefits—the biggest being the convenience of online shopping combined with immediate gratification. It draws the customer into the store where he or she is more likely to purchase additional items.
But to pull it off, retailers need to have an integrated view of inventory across channels and their 3PL’s infrastructure. For 3PLs, a pickup in-store policy creates a need for more inventory transparency because, if an item is not currently in stock in the warehouse, it may be available at a local store. Retailers need to understand if their 3PL has the capability of tracking inventory levels in real time, both in the warehouse and in stores.
Amazon’s anticipatory shipping concept is both simple and sophisticated: Leveraging its vast amount of customer data (including previous order histories), the company believes it can predict customer orders before they are placed. The idea is that Amazon would pre-pack anticipated orders and store them at local shipping hubs or even on trucks until the customer places the predicted order. If successful, Amazon’s anticipatory shipping concept would streamline the fulfillment process, create new efficiencies and further improve Amazon’s customer experience.
But if the anticipatory model catches on and other retailers take a shot at predicting orders, their fulfillment providers would need to start picking and packing orders with no guarantee that they are actually placed. This means they would also need extra space in the warehouse to store these packed orders until they are placed, if ever.
For the average retailer, anticipatory shipping is filled with extra work and extra cost. If retailers go through the trouble of picking and packing an item, they must sell that item because the costs associated with unplaced orders are simply too high. This may require setting unsold items at a discount if predicted orders aren’t placed within a specified amount of time or using customer data to push items to the customers those orders were targeted at in the first place.
Preparation is key for retailers looking to implement customer-driven changes in shipping. The purpose of changes like free returns, pickup in-store and anticipatory models is to ultimately improve customer experiences. Without an understanding of the implications for 3PLs, retailers may run into problems delivering on their promises to customers—effectively negating the customer experience improvements brands hope to achieve.
Maria Haggerty is CEO and co-founder of Dotcom Distribution, where she plays an integral role in developing and defining all aspects of the operation, including sales and marketing, operations, finance and information technology. Her strategic leadership helps the board and senior management to establish long-range goals, strategies, plans and policies. Haggerty holds a CPA. Prior to founding Dotcom, she began her career as an auditor at Arthur Andersen and was the CFO of GoodTimes Home Video.