Can free delivery ever help ecommerce businesses with profitability?

‘Free shipping, no minimum cart value’

It’s a brilliant one-liner to catch the attention. Free shipping has always been an attractive selling point for customers. But the failsafe marketing strategy comes with an asterisk. Let’s talk about why free shipping is a necessary evil and what it entails for brands.

In the early 2000s, Amazon rolled out ‘Super Saver Shipping Program’, offering free deliveries for orders above a certain amount and gradually reducing the bar. The result – a massive jump in sales. The ecommerce giant was quick to realize customers’ psychology for things labeled as’ free ‘. Others followed suit.

Today, surveys underpin the value ‘free shipping’ creates for online businesses. While 83 percent of UAE shoppers choose online shopping purely for convenience, a survey on Amazon Middle East shopping preferences show they shop online specifically for fast and free shipping. It has helped brands acquire customers, gain market share, become a brand differentiator, and enhanced sales at the very least.

A Shopify report also validates that offering free shipping improves the online shopping experience for 59 per cent of consumers, followed by free returns (40 per cent) and faster delivery (34 per cent). In fact, high shipping fees are one of the top reasons for cart abandonment. As much as 48 per cent of consumers will add more items to qualify for free shipping.

Clearly, the rising expectation for free and fast shipping directly impacts customer experience, making it a must-have. But treading the route with caution is critical as even Amazon could not offer free shipping without taking a hit to its profitability.

Free shipping and speed at scale for every shopper is a high-cost affair. The actual cost of free shipping includes several factors such as operational inefficiencies, delivery scalability, and returns, all of which can pose a challenge when retailers have to account for the same from their profits. While intelligent pricing to absorb costs is always an option, brands can easily lose customers who can see through these charges to competitors.

Free shipping as a paradox?

Well, shipping costs can be optimized to suit a company’s sales and profits. Let’s see how smart logistics management solutions can help businesses work the economics:

Increasing delivery scalability

According to Euromonitor, the value of the UAE’s e-commerce market will reach $ 8 billion by 2025. Handling such immense growth in order volumes and narrowing delivery windows will necessitate partnering with logistics companies. It is about delivering on time and to everyone.

Partnering with the right logistics service provider is also critical from a growth standpoint as it can help open doors to newer geographies using their last-mile networks. Logistics companies tend to have the necessary resources, infrastructure, and networks to manage large-scale shipping orders cost-efficiently. But how to pick the right delivery partner for your business?

Powered by AI, machine learning, and automation, smart logistics management solutions enable seamless management of logistics service providers. The system considers various parameters such as cost, expertise, historical data, and others to select the right delivery partner (third-party or own fleet) for the task.

A smart logistics management platform scales delivery operation by auto-allocating close to 100 per cent of all orders.

Delivery efficiency

Wrong and missed deliveries, route closures, diversion and customer unavailability are some of the reasons that affect the time to deliver, cost, and customer experience.

Advanced logistics management solutions automate route planning. Its optimization engine analyzes historical data to chart out the most cost, time, and fuel-efficient route to a customer’s location. It constantly fetches real-time data to reroute to the nth minute to avoid roadblocks, diversions, and traffic congestion that could delay deliveries.

Increasing first attempt delivery rate through:

Improving address quality

Credit it to the absence of PIN codes, but the poor address is one of the top reasons for delivery failures in the UAE. Geocoding rectifies this challenge by converting the address into precise coordinates (latitude and longitudes). It helps drivers reach the exact delivery location to meet SLAs promised.

Ensuring customer availability

Failed deliveries and reattempts take a significant toll on the bottom line. Delivery stakeholders have to go over the entire cycle spending time, resources, and efforts to reschedule deliveries. Going by a Mavericks report, last-mile delivery failure rates range between 15 per cent in the UAE and 40 per cent in Saudi Arabia.

It leads to poor customer satisfaction and lost revenue in a country where cash on delivery payments reign supreme. Route optimization empowers customers to change their preferred delivery location and time on the fly. It significantly helps increase the chances of customer availability for a successful first attempt delivery.

Moreover, accurate ETAs also help ensure customer availability. The system triggers a notification to the customer via SMS, WhatsApp, or email once the consignment is out for delivery. The customer can use the link to track the order in real-time. Having delivery visibility enhances the chances of first attempt deliveries.

The key to operational efficiency lies in striking a balance between customer experience and profitability.

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