Typically, peak shopping season begins in the US late in the year – during Thanksgiving, Black Friday, Cyber Monday and the Christmas holidays that follow. Elevated order volumes during these times is for obvious reasons – these are festive occasions, and there’s lots of shopping people need to get done. In recent years, all of those occasions trail behind two days in July – Amazon’s Prime Day.
Prime Day represents an opportunity to get in front of many buyers – but especially the young consumer whose purchasing power and influence continues to grow all the time, as data from a 2021 Profitero survey shows:
Customers do not shop on Prime Day with the intention of gifting things to their loved ones for a festive occasion – rather, it is about the thrill of the treasure hunt, where many products are available at sharp discounts and there are deals which may not come around again. Forbes reported that 48% of Prime Day shoppers make purchases they never actually planned for – largely driven by the fear of missing out on a great deal.
However, as an online merchant, if you’re expecting people to only be shopping on Amazon, you’d be wrong – Forbes goes on to say that as many as 58% of people compare prices on other websites before checking out on Amazon. And why wouldn’t they? Many of Amazon’s competitors, such as Walmart and Target now run their own competing programs at the same time as Prime Day.
Many of these competing programs center around the premise of free and fast “Prime-style” shipping – like Walmart’s TwoDay and ThreeDay programs.
While the surge in order volumes means an opportunity to acquire new customers and boost sales, it brings with it increased order fulfillment complexity – due in large part to Amazon themselves, customers now expect free, fast same or next day shipping on nearly any online purchase they make.
In Amazon’s own words, Prime Day boosts sales both on and off their website. As an online seller, navigating the avalanche of orders flooding in from many different channels while managing to delight customers with free, ultra-fast shipping can seem overwhelming and expensive. But merchants do have a number of options that help them manage the logistical complexity and deliver on customer expectations, many offered by Amazon themselves.
Order Fulfillment Options Offered by Amazon:
In recent years, Amazon has become as much a logistics company as a retailer, offering merchants different options through which they can have orders fulfilled:
- Fulfilled By Amazon (FBA): The vast majority of SKUs on Amazon are shipped by the company itself, where merchants send their inventory to its warehouses, and then have their orders picked, packed and shipped for them.
- Amazon Multi Channel Fulfillment (MCF): In recent years, Amazon has expanded its reach significantly – its Multi Channel Fulfillment (MCF) offering allows merchants to have Amazon fulfill all of their orders across various channels – such as their own website or Shopify / BigCommerce storefronts.
- Buy With Prime (BWP): Prime shipping standards have become the norm for everyone, on and off the Amazon marketplace. Amazon’s most recent and noticeable step in normalizing these high standards is Buy With Prime, which enables merchants to offer the Amazon Prime shipping experience on their own website. Customers login to their Amazon accounts and checkout and orders are fulfilled by Amazon.
These options come with significant advantages and drawbacks, a few of which we outline below:
Advantages of Using Amazon for Order Fulfillment:
- Picking, packing and shipping are taken off your plate as a merchant – there’s not a lot of work to be done, except sending the inventory in time to Amazon warehouses.
- FBA makes products automatically eligible for the Amazon Prime badge, which is a filter many shoppers on Amazon apply while searching for items.
- Amazon (in most cases) is able to meet the gold standard of shipping items by the next day – which can elevate customer satisfaction and prompt repeat purchases.
- For MCF purchases made outside Amazon, buyer confidence may be increased if they see that Amazon is fulfilling their order.
- For small D2C merchants looking to make a mark and establish themselves, Buy With Prime can provide a lot of trust in the buyer’s mind about the quality of not just their shipping, but the larger brand they’re engaging with.
While these are definitely strong positives, the programs do have a few significant drawbacks for merchants to keep in mind and weigh when making a decision.
Drawbacks of Using Amazon for Order Fulfillment:
- The charges and fees associated with FBA have continued to rise – according to Marketplace Pulse, they’ve climbed by as much as 30% since 2020.
- Research and analysis performed using Marketplace Pulse data by Cahoot shows that while the new Buy With Prime program can offer merchants savings of as much as 43% compared to Multi Channel Fulfillment, it can still be twice as expensive as FBA (where sales are restricted just to the Amazon marketplace).
- Possibly most importantly, when merchants use the Buy With Prime program, they send the customer to Amazon to checkout – where marketing or promotions may divert the buyer to an alternative (possibly cheaper) option.
- Lastly, with BWP, merchants do not have access to data about the customers on their very own website because the customer logins to their Amazon account to checkout, not through the merchant’s gateway.
Many merchants seeking to regain control of their customer data and improve their margins have tried to pivot away from Amazon FBA towards using a 3rd Party Logistics provider (3PL). 3PLs bring some of the same convenience that FBA does to merchants, but come with their own sets of limitations:
Advantages of Using a 3PL for Order Fulfillment:
- Using a 3PL offers merchants a more cost-effective way to manage orders outside of Amazon, rather than using a program like MCF.
- 3PLs might offer merchants possibilities for kitting and customization, which are not possible when shipping with Amazon.
- 3PLs simply take care of shipping and stay out of the engagement between you and your customers, unlike a program like Buy With Prime.
However, the staple source of revenue for a 3PL lies in shipping, and that has unfortunately become a more and more expensive activity.
Drawbacks of Using a 3PL for Order Fulfillment:
- 3PLs are in the business of shipping, and various activities of the shipping lifecycle have gotten more expensive – leasing warehouses, shipping costs and the cost of labor.
- The General Rate Increases of the shipping carriers has consistently exceeded the prevailing inflation rate, while it now costs $19 / hr to hire workers for warehouses with quit rates at an all time high. Additionally, warehouse availability is low, driving leasing costs higher.
- All these mean that 3PLs are forced to pass on increased costs to customers, eroding margins.
Conclusion:
As a merchant, you might be prompted to wonder whether there’s no solution that can both help you delight your customers while costing you less and allowing you to extract more margins. Consider order fulfillment solutions with differentiated models such as Cahoot that distribute your inventory strategically in warehouses across multiple locations in the country.
By placing your product closer to the customer, it is possible to achieve same or next day shipping, while deriving cost efficiencies. Oh, and it uses ground shipping – which is better for the environment than air cargo!
Already working with a traditional 3PL but want to switch to a better network, like our peer-to-peer model? We know migrating fulfillment partners can be an uncertain and stressful process which prevents merchants from exploring superior alternatives. To make that process simpler, check out our 3PL migration guide which provides you step-by-step details on how to make a smooth, seamless switch.
The mid-year shopping season brings with it new customers and supercharged sales but also logistical complexities to overcome. It is essential for merchants to have a solid game plan for order fulfillment across all of their channels, with a strategic order fulfillment partner that offers both savings and operational excellence. It might just be the decision that provides your e-commerce rocketship its fuel.
