Are free deliveries ever really free?

15 February 2019

Not a moment too soon: improvements in Europe

The Digital Single Market is focused on furthering the transparency of the European market as a whole, with particular emphasis on parcel deliveries. Time and again, retailers have struggled with the flimsy information from parcel providers, with very slow deliveries and lack of track & trace facilities. The impenetrability of pricing is another obstacle: a parcel sent from the Dutch city of Maastricht to nearby Belgian Maasmechelen – just 10 kilometres away – costs almost the same as the 1,000-km journey of a parcel going from the North to the South of France. Differences in legislation and regulation, and how to handle returns, are also tricky. Europe is trying hard to resolve these issues by developing the new information platform Deliver in Europe. Its aim is to simplify cross-border operations for retailers. Not a moment too soon.

A standardized parcel label and matching technical specifications for parcels can also improve intercountry cooperation. This will enable interoperability between parties and make web stores more flexible. They will no longer have to bind themselves to the IT integration of one single logistics service provider. When the standardized label is widely adopted by the market, web stores can choose any logistics service provider they want. At the same time, the logistics service provider can read out and then deliver any package all across Europe. For (web) stores, this means always knowing where a parcel is. Europe is focusing on speed, affordability, flexibility and market transparency for the mail and delivery business. The retail market is likely to benefit enormously.

Free? Not really

For as long as we can remember, free deliveries and free returns of parcels have been important international online retail trends. In 2005, Amazon was the first company to offer this benefit, with Zalando following their lead in 2010 in Europe. Thanks to its size, Amazon can offer customers free  delivery options at (virtually) no cost at all. Zalando has made free delivery and returns into a cornerstone of its marketing strategy to capture a top position in the European market. For onlife consumers, free deliveries and returns are essential to online retail. Many customers even cancel their order if the shipping fees are too high, or if the order does not qualify for free delivery. The majority of European consumers describe “free delivery” as their number one priority.

However, this policy of free delivery and returns also does not come without challenges for retailers. Large(web) stores are expected to just provide this so-called free perk. Small and midsized retailers find themselves pushed into a race to the bottom. Particularly for items with little market value, free delivery and returns are just not feasible. If only consumers realised that in this context, there is no such thing as “free”. It just means someone else is paying for it – the retailer or brand. Insisting it is free might even undermine the added value of the service of delivery. Retailers can take heart when they learn of recent UK developments. Free delivery has losing ground, there. Within a range of options to customers, free delivery is now only available for items with a longer delivery time or with a value over a certain amount. Customers ordering items in a hurry, or small orders, simply have to pay for their delivery.

Next time, I will look at the new business models and their solutions for the last mile.

This is blog 43, based on my book ‘The end of online shopping. The future of retail in an always connected world’, published by Business Contact (Dutch/Flemish editions), Nubiz (English edition for UK and US, and Danish editions), WSCP Singapore (English edition for SE Asia), Post & Telecom Publishers Beijing (Chinese edition), Hoepli (Italian edition). Most recently, the book was published in Korean in December 2018 and it is being translated in German, to be published in spring 2019. Additional translations are being prepared for later in 2019.

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