Tag Archives: Amazon Prime

Peace of Mind as a HUGE Competitive Advantage

Some of you may know that I recently moved from the Chicago area to Raleigh after some 35 years.

While I have moved away from many close family members and old friends, the person I will probably miss the most is Mr. Lee (who, like my elementary school teachers, has no known first name).

Mr. Lee runs a humble shop called North Town Auto, and took care of our out-of-warranty cars, both domestic and foreign, for many years. It helped that he was only 2 blocks from us in Northbrook (convenient to the Metra Station!). And while there are probably mechanics who could do a certain thing for a slightly lower price. I would use Mr. Lee even if it required a drive to get there.

The reason? Peace of mind. Peace of mind that the car would be fixed correctly, that I would not overpay, that I would not pay for unnecessary repairs, that things would be done on time, that if he said I needed to do something, then I actually needed to do it.  That there was service with respect and a smile.  No worries, as they say.

I had complete loyalty to Mr. Lee.  And when it comes to loyalty, peace of mind turns out to be a huge competitive advantage.

Americans spend a lot on lots of stuff. They generally don’t seem to mind spending a lot.

However, Americans HATE the thought that they might be over-spending. And they don’t want to worry about it.

Think about institutions that offer what Mr. Lee does:

  • fair price (not necessarily the lowest)
  • high quality
  • consistency in delivery – no surprises
  • customer focus – great service, you don’t need to be on guard

Here are a few that come to mind that deliver great peace of mind:

unknowntj

  • COSTCO – – once I pass through those portals with my oversized shopping cart, I’m pretty sure that anything I put in my cart is a great deal and great quality (even if in the back of my rational mind I realize that some things are better value than others)
  • Trader Joe’s – – great value, interesting selection, fun experience – 2-Buck Chuck!
  • Amazon Prime – – I know my selections will be delivered on time and at no cost
  • Tire Rack – – awesome customer service, great pricing, instant shipping – – it’s the only way to go
  • Online window treatments – seriously – – it’s so automated and competitive that you’re not going to make a big mistake
  • Spirit Airlines (just kidding!)

Here are a few organizations that seem to fall down on the peace of mind continuum – – you might be overpaying, you’re not sure of the quality delivered, etc. And that bugs you.

chipotle

  • 1-800-Flowers – – sometimes works, sometimes doesn’t
  • Chipotle – – unfortunately moved from the other list – – love their food, but still have a vestige of doubt
  • Car Dealers – – sorry, guys – no change
  • Movers, painters, realtors, various local contractors – – until you build a track record like Mr. Lee, you’re not on my speed dial.

Why is peace of mind so important? Because we’re so stressed with just the basics of surviving from day to day that we need to simplify and eliminate unnecessary decisions.

dog

While Mr. Lee is a small businessman, the Peace of Mind list includes enterprises of all sizes.  We all have our examples of who provides peace of mind and who doesn’t (would love to hear about yours).

In the end, it’s about delivering consistent, dependable value. And that’s good advice for everyone.

The Final Mile is The Toughest

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One of the great things about online shopping has been the free shipping, often via retailer promotions (‘free shipping over $50’) or programs like Amazon Prime.

Isn’t it terrific?  You can be prancing around doing whatever one does when one prances, and should a random thought pop into your head like “man, I really need a Teflon fly-swatter”, you can just go online, order it, and before you know it, like Bugs Bunny waiting at the mailbox for his order from Acme, a Teflon fly-swatter arrives at your doorstep, typically in a box big enough to hold a microwave oven.

Screen Shot 2014-05-13 at 11.25.58 AM

Long Haired Hare (1949)

Well, you may want to get your impulse shopping Jones satisfied now, because the sad news is that free shipping as we know it is likely to be changing.  Reality bites.

This past week FedEx announced it was changing its freight policy to include not only weight, but also the dimensions of the shipped product.  This will result in increased shipping costs on about 1/3 of items, particularly large but lightweight products (e.g. toilet paper) that fill up trucks or planes but don’t represent as much revenue (or profit).

Similarly, Groupon, which also sells a few things from time to time, has increased its free shipping threshold from $20 to $25.

Why the changes?  Well, the short answer is that you can’t download stuff you order online.

Amazon might have the most amazing distribution centers, but stuff still has to be shipped with pre-internet technology like TRUCKS and AIRPLANES and HUMANS.  And the cost of fuel of all of these mechanisms is going up, as are fees, taxes and everything else.  Like a bridge that goes 99% across a river, that final 1% really makes or breaks the whole program.
– there are related impacts as well:  retailers will likely now need to stock more box sizes (to reduce over-sizing), which carries inventory costs.

overpackaging

SO – someone has to pay for these increased costs.  And ultimately you know who that is:  you and me.

It’s well known that there’s a high rate of cart abandonment – by one measure about 65% – -and that 44% of these are due to high shipping costs. (cool infographic here).  So retailers are loathe to add or increase shipping charges.

Shopping Cart

What is likely to happen is that costs will be increased throughout the system, for example:
– Shippers like FedEx incorporating package dimensions to increase fees (and UPS likely to follow)
– Retailers raising thresholds for free shipping (like Groupon)
– Retailers increasing prices in other ways (Amazon Prime going from $79 to $99)
– And plain old increased costs of merchandise to cover shipping

There will very likely be increased use of shipping as a promotional tool, but over time costs will inevitably need to increase.  There’s just not enough profit in the system right now.

Until some equilibrium is reached, however, you may still notice overt signs of covering costs – – like $50 for a $2.50 order of screws (actual cart total – – and yes, it was abandoned).  So keep your eye on the ‘shipping cost’ line for the time being.

Screwed!