Amazon created the expectation of 2-day shipping. Now it needs to scale back.
Free two-day shipping attracts customers. It also costs Amazon a lot of money.
In less than two decades, Amazon single-handedly transformed the way we think about online shopping. Before Prime launched in 2005, two-day shipping was virtually unheard of — now more than 100 million people use the service, and they expect the things they order online to arrive at their doorsteps in 48 hours or less.
There’s just one problem: Amazon, which has focused on obtaining customers at all costs for decades, seems to be looking for ways to cut down on shipping costs. In some cases, that means weaning Prime users off the near-instantaneous shipping they’ve come to expect.
In the beginning, free two-day shipping was Prime’s biggest draw. Memberships were cheap — $79 a year in 2005 and $119 today — and users had the option of paying a small fee to get their orders delivered in just one day. Today, Prime is about much more than package delivery: Users can order everything from groceries to a house cleaner through Amazon. But as Amazon has expanded, the promise of free two-day shipping, the main draw of Prime, has begun to come with a lot of caveats.
That’s not to say Amazon is totally changing course. In 2014, the company launched Prime Now, a service designed to deliver products in an hour or less, for some New York City users. (It expanded to other major cities in 2015.) Amazon often makes headlines for the grueling work expected of its delivery fleet — or, more accurately, the network of contractors that deliver packages to Prime users across the country — a sign that it continues to take its shipping promise seriously, often at workers’ expense. But even as Amazon has reemphasized ensuring speedy delivery, it has begun looking for ways to rein in customers’ desire for instant gratification, a phenomenon it arguably helped create, in an attempt to cut costs and streamline its supply chain.
The result? Prime orders don’t necessarily arrive in two days anymore, nor are they always delivered to customers’ homes. All of this makes sense from a financial perspective, but that may not be enough to win customers over.
Prime customers pay for — and expect — quick, free shipping. They aren’t always happy about Amazon’s cost-cutting efforts.
Two-day Prime shipping isn’t necessarily a thing of the past, but it’s undeniable that Amazon delivery isn’t as seamless as it used to be.
Amazon doesn’t deliver some small items, like razors or hair ties, individually. Instead, customers have to purchase $25 worth of these “add-on” items before Amazon will send out the box; the point, according to the company, is to give customers access to “low-cost items that would be cost-prohibitive to ship on their own.” Since 2011, Amazon has given users the option to have packages delivered to “lockers,” which are basically branded PO boxes, instead of to their homes or offices. Most recently, Amazon rolled out Amazon Day, a new delivery option that lets customers choose a specific day for all their orders to arrive.
All of this makes sense from a financial perspective. Delivering packages to a single location instead of hundreds of individual homes cuts costs, and requiring customers to meet a delivery minimum for small orders helps Amazon consolidate deliveries, as does the Amazon Day program.
But the response to these new initiatives has been mixed at best.
In December, Fast Company’s Mark Wilson wrote about how Amazon Prime is “getting worse,” claiming the company had all but abandoned its promise of two-day shipping for most products. “That little Prime logo used to mean something,” he wrote. “Now it feels like a ruse that lulls shoppers into a false sense of security, until they go to checkout and see a shipping arrival date far later than anticipated.”
He continued:
This cuts through the greatest promise of Prime. It’s not just the free, two-day shipping. It’s that it’s so reliable, you never have to think for more than a second about buying something. In this sense, Prime was constructed to be great for the consumer (so efficient) and great for businesses (mindless impulse shopping!). … It doesn’t help that we’ve seen a slow dilution of Prime itself over time, with the rise of Prime Pantry and Add-on Items. They force you to buy a minimum number of items to get the best deal, adding back the very psychic burden Prime had eliminated from the equation of online shopping in the first place.
Wilson’s complaints about Prime suggest a bait-and-switch strategy. Amazon got 100 million people to become Prime users by guaranteeing frictionless service, but now that it’s gotten a sizable chunk of the market hooked on quick, free shipping, it may be trying to cut delivery costs by scaling back on the very thing that got customers interested in the first place. Put another way, Prime is built on the idea that shopping should be frictionless; Amazon has now introduced a degree of friction that wasn’t there before, and some customers aren’t happy about it.
This is not just around holidays. #AmazonPrime no longer means what we've been brainwashed to think it means. IMO all the other "benefits" stuffed into Prime are meant to distract customers as the core but expensive shipping promise is deliberately eroded https://t.co/4nM3HX40AI
— Evan Sirof (@esirof) December 19, 2018
“I can’t help but feel the frustration around how the false sense of shopping confidence is blown when Amazon simply uses the PRIME lockup as a gimmick,” one reader wrote in response to Wilson’s article. “The ‘prime’ benefit of getting your stuff when you expect it is gone, and it’s not just because of the holiday shipping crunch.”
Amazon changed customer expectations regarding shipping. Now it’s changing them again.
One of Amazon’s core principles is “customer obsession,” a “vigorous” desire to “earn and keep customer trust.” (Amazon has, by the way, also been known to use customer obsession as an anti-union talking point.) Put simply, customer obsession means giving the customer what they want as cheaply and quickly as possible — say, within 48 hours — at the expense of profits.
Anne Goodchild, a professor of civil and environmental engineering at the University of Washington who focuses on supply chain transportation and logistics, told me that Amazon significantly altered customer expectations and shopping patterns.
“The status quo [has been] that we take ourselves to the store, pick up the goods, and go back to our homes. That’s actually a pretty inefficient way of doing the last mile: We all individually use our cars, and that kind of commuting creates a great travel burden,” she said. “Delivery services, to some extent, have the potential to be an improvement. [They consolidate] a lot of deliveries, hopefully, into one vehicle like a UPS truck. They have strong incentives, profit incentives, to do that in an efficient and cost-effective way.”
The problem, Goodchild said, occurs when delivery becomes too quick. “As we move toward faster delivery, it gets harder to consolidate.” The promise of instant delivery means that customers can buy virtually anything they want without thinking about it; they don’t always think to consolidate their purchases into a single order, because there’s no need to. (A 2018 survey by the optimization platform Feedvisor found that 46 percent of Prime members shop online more than twice a week.) “When we’re not paying some sort of personal cost for the trip, I think it’s easy to overlook how much travel we’re adding,” she said.
Other retailers have attempted to compete by offering similarly fast shipping. “After Amazon, we have things like ShopRunner and even Target [now] saying that if you order certain items, you can get two-day shipping,” said Saurabh Ambulkar, a management professor at Northeastern University. “I don’t see two-day shipping going away. I think there’s definitely more and more businesses adopting it.”
Even as other retailers lower their shipping times to keep up, Amazon appears to be tweaking its two-day shipping promise. Prime may be cheap and easy for customers, but the cost of all those deliveries adds up quickly. Amazon spent $21.7 billion on shipping costs in 2017, according to its annual report. That’s nearly twice what it spent on shipping in 2015.
“Amazon has pursued a growth trajectory rather than a profit one,” Goodchild added. “I think everyone would agree that their strategy has been to please customers and, in doing so, grow their market share.”
But now that it has more than 100 million Prime customers, Amazon seems to be looking for ways to make Prime more profitable — which could end up alienating some of the customers it has made an effort to court.
In a statement, Amazon said it was sticking to its quick delivery promise:
At Amazon we are focused on delivering as many items as fast as possible. Prime offers the fastest way to receive items for free. Prime free two-day shipping is available on more than 100 million items that arrive in two business days after they ship — all with no minimum order amount. In addition, last year we delivered billions of products in two-days (or faster) in the U.S. alone, and the majority of U.S. members receive packages from Amazon seven days a week. We also expanded Prime Free One-Day Shipping and Prime Free Same-Day Delivery to more than 10,000 cities and towns. For delivery in a matter of hours, we offer Prime members delivery from Whole Foods Market through Prime Now in 66 U.S. metros and pickup from Whole Foods Market through Prime Now in more than 20 U.S. metros.
Justin Smith, the founder of TJI Research, an analytics firm that focuses on Amazon, told me that Amazon is looking for ways to make Prime more efficient — and cost-effective. “Lockers or other pickup points, or encouraging customers to ship items in the fewest number of boxes possible, which might mean getting it a bit later than if you had shipped items separately,” are all part of that strategy.
“I also think that because of how big they are, they are able to become smarter about predicting what items people are going to order in different regions,” Smith added, “and I believe they’ve been able to put items in warehouses closer to where they expect people to order them from in order to reduce the distance that items have to be shipped when they’re ordered. If that can be done efficiently, I think you reduce the individual shipping volume as well as decrease the delivery time, which improves the customer experience.”
It’s also better for the environment. Transportation is one of the biggest contributors to carbon dioxide emissions in the US, and medium- and heavy-duty trucks — the kinds of freight vehicles that are often filled to the brim with Prime purchases and other online orders — are responsible for nearly one-quarter of the total transportation footprint. These trucks, which used to deliver the bulk of their loads to stores and other retail hubs, are now increasingly dropping packages off to individuals. All those one-off orders add up, both financially and environmentally — but because this type of delivery is often more convenient for the consumer, this has become the new normal.
Not everyone agrees with the premise that more efficiency will result in greater customer satisfaction. Ambulkar said customers who have come to expect two-day or even same-day delivery might not readily accept more optimized, less customer-friendly options. “The whole [promise] was that Amazon can deliver the thing to my house, so why do I need to go to the central locker to get something? Why do I need to go to the store?” he said. “If I have to step out of my house to get something, they lose that competitive advantage that they have, but they have to do some of it [in order to] ease the pressure on the supply chain.”
“In bigger cities, maybe the central locker is closer to the place you work, but in other places, I think delivering to residents is what made Amazon more competitive than other players in the market,” Ambulkar added. “If I have to go to a central locker, I can just go to the store to get that product.”
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Update: This article has been updated with a statement from Amazon and a correction regarding Prime Now.
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