How to Adapt to Amazon’s Latest Push for 1-Day Delivery
How to Adapt to Amazon’s Latest Push for 1-Day Delivery
Strategies and Tactics for Coping with New Amazon SFP Requirements
Amazon’s new Seller Fulfilled Prime (SFP) requirements came into effect on February 1, 2021. The mandate calls for third-party sellers offering free Prime shipping to show a nationwide 1 calendar-day or 2 calendar-day delivery promise on their product detail pages. Sellers must then meet very strict delivery speed metrics on orders for those products. For insights into all of the new SFP requirements, see Part 1 of this series.
According to Amazon, the reason for this big change is to make sure that Prime shoppers have the same fast delivery experience regardless of who is fulfilling the order, the Seller or Amazon itself. Amazon also shared that before Covid-19, only 16% of SFP orders were meeting the Prime shopper expectations.
Even though Amazon announced the changes back in August of 2020, most merchants were unprepared when Amazon actually put them into effect. Many have or are at risk of losing the Prime badge on their listings, and hence access to 113 million affluent Prime subscribers in the U.S.
This change heralds a new era of nationwide 1 calendar-day delivery being the new normal for the e-commerce industry as a whole. This article explores what this impact will be and offers specific strategies and tactics that merchants can and must take.
Regional SFP Was Profitable for Merchants
Before the new nationwide SFP requirements, merchants were happy to offer SFP regionally. They could carve out a zip-code radius around their warehouse and create shipping templates based on what they could profitably afford to deliver in one or two business days using economical shipping services. Using Regional SFP, merchants in California, Texas, Florida, and New York could profitably offer SFP with minimal competition between one another.
Now that Regional SFP has gone away, sellers must decide whether to be all in with offering SFP nationwide. The alternative is to stop offering SFP altogether and suffer the consequences. For example, if Sharon in CA decides to do nothing, but Alfred in TX, Betty in FL, and Charlie in NY decide to embrace nationwide Prime, what will happen?
Source: Cahoot Peer-to-Peer Order Fulfillment Network
Customers in Sharon’s region will see Prime offers from Charlie, Alfred, and Betty ahead of Sharon’s because Amazon prioritizes Prime offers to its 112 million subscribers ahead of the non-prime offers. The irony is that this would be true even if Sharon is offering free standard shipping in her region. Not offering nationwide SFP means that Sharon will not only miss out on growth opportunities, but she may see an ever-shrinking market share in her backyard.
The Future is 1-Day Shipping on All Channels
Once sellers figure out how to offer nationwide Prime, they're most likely going to offer the same kind of fast and free shipping on their other channels. Nearly all marketplaces (e.g., Walmart, eBay, etc.) prioritize free and fast shipping offers ahead of the others as that is what the customers want. Products with slower shipping will be less visible, and those sellers may even have to compensate for that through more paid advertising or lower prices. Fast shipping is here to stay, and it's not just about complying with the SFP program changes, but it’s really about preparing for the future.
What Are The Options to Cope with Amazon’s New SFP Requirements?
Schedule Weekend Pickups With Carriers That Deliver on Weekends
Maintaining SFP eligibility now requires weekend pickups and deliveries. Merchants must operate at least 6 days a week, with Saturday or Sunday as their weekend operation. This has been a challenging decision for sellers as only a few carriers can offer pickup and delivery on weekends. As of the time of writing, only FedEx, UPS, and USPS are offering Saturday pickups, while Sunday pickups are only available to certain clients of FedEx and UPS. Calling carrier reps and negotiating terms for weekend pickups and deliveries would be crucial to maintain SFP eligibility and profitability, especially because these additional weekend services may come with extra fees.
Because it remains unclear as to whether packages picked up on Sunday move very much through carriers’ logistics, most merchants are choosing Saturday. Some merchants are electing Sunday pickups for religious or operational reasons.
Source: Cahoot Peer-to-Peer Order Fulfillment Network
Merchants Must Monitor Their Delivery Speed Metrics
Amazon has made it clear that failure to meet the program requirements will result in the suspension of Seller Fulfilled Prime eligibility, and the Prime badge will be disabled on the merchant’s Seller Fulfilled Prime listings. Merchants must constantly monitor the Delivery Speed report in their Performance Dashboard. The SFP performance offers a downloadable report where merchants can see which items are not meeting the delivery promise metric, and it can help merchants spot problematic SKUs. To avoid suspension, they must apply the tactics listed below to the specific SKU’s that are negatively impacting their delivery speed metrics.
Extend Same-Day Shipping Cut-Off Time
With the standard 2 pm same-day shipping cut-off time, a product detail page can show a 1-day delivery promise a maximum of 14 hrs a day, from midnight to 2 PM. It will show a 2-day promise for the remaining 10 hrs, from 2 PM to midnight. This is even if everything you ship was being delivered in 1 day. See Part 1 in this series for more details on how we calculated these numbers. Since cut-off times can be set to 30 minutes before the pick-up time, this is where arranging a later carrier pickup can seriously benefit merchants. By extending your cut-off time to 5 pm, you can add three extra hours each day, thereby enabling more customers to see your 1-day promise, and in turn, boosting your overall delivery promise metrics. Merchants considering this option should tighten up their operations, so the last-minute orders don’t get left behind. Investing in a next-gen shipping and fulfillment software that eliminates manual effort would help.
Identify Fast and Slow Moving ASINs
With the switch from selling regionally to selling nationally, merchants should carefully evaluate the sales velocity and price competitiveness of individual Amazon Standard Identification Numbers (ASINs). Selling overpriced or slow-moving regionally may have been very profitable,. Due to the increased competition, only comeptively-priced fast-moving ASINs should be considered for nationwide Prime.
Verify Product Listing Details and Update Shipping Templates
The new SFP requirements apply to standard-sized products (packages up to 18”x14”x8” and less than 20 lbs). SFP requirements for oversized products remain less restrictive as of the time of this article. If this information is missing from product listings, Amazon assumes that they are of standard size. As part of this transition, merchants must also modify their Prime product listings and shipping templates to meet the 1-day and 2-day promises in all of the contiguous 48 states. Therefore, it is essential that merchants thoroughly check product listings and update them accordingly.
Diversifying Sales Channels to Grow Revenue
Diversifying by selling on multiple marketplaces has certainly become the trend, and for good reasons. Having a presence across multiple channels expands a merchant’s reach and helps customers in their decision-making process. According to Shopify, 73% of shoppers use multiple channels before making a purchase. The National Retail Foundation also found that multi-channel shoppers also spent $93 more on average to buy gifts than those who only used one channel.
In addition to expanding reach, diversification also boosts sales opportunities. According to a Shopify study, merchants who sell on 2 or 3 channels respectively have 38% and 120% higher revenue growth than those who sell on a single channel. Therefore it has become increasingly imperative that merchants sell on more channels than just Amazon. To maximize the potential from selling across multiple channels, merchants should also consider adding a marketing budget to drive more revenue to these channels.
Image Alt-Text: Adding multiple e-commerce sales channels increases revenue up to 120%
Source: Shopify
Diversifying Fulfillment Channels
As Covid-19 ramped up last spring and summer, a lot of Amazon Sellers were negatively impacted by Fulfillment By Amazon (FBA) restrictions. Amazon immensely delayed the shipping of many products and stopped accepting non-essential products to FBA. Merchants couldn’t have planned for Covid-19 in advance, but they can plan for redundancy in fulfillment channels going forward. Backup fulfillment centers can pick up the slack when FBA decides to throw a wrench into the plans. Part three in this series will explore these options in detail.
Place Inventory in Multiple Fulfillment Centers Closer to Customers
Building or leasing warehouses, contracting multiple 3PLs, or joining an eCommerce order fulfillment network; placing inventory closer to customers makes 1-day delivery affordable. Economical ground shipping services can cover a decent distance regionally and still deliver packages within 1-or-2 business days. The diagram below shows how much of the US population can be reached with 1-day delivery using ground shipping. It takes at least 4 locations to satisfy the SFP page view requirement on February 1 and at least 9 to satisfy the June 1 requirement. However, Amazon 1-day SFP page view metrics are based on a calendar-day promise, thereby requiring many more locations. See Part 1 in this series for more details on this.
Source: Cahoot Peer-to-Peer Order Fulfillment Network
It’s clear that opting out of 1-day delivery is not a viable option. For sustained growth and even survival in many cases, merchants must now offer 1-day delivery on all online channels. The biggest hurdle for most eCommerce merchants remains how to do this profitably.
In the final part of this three-part series, I will explore the pros and cons of various eCommerce order fulfillment options with an eye on helping eCommerce retailers make informed decisions about how to survive and thrive in the new normal of nationwide one-day delivery.
Author:
Founder and CEO, Cahoot
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