Supply Chain Trend: Membership Programs

With the rapid growth of eCommerce, numerous recurring themes relating to the supply chain have appeared, including the increase in product diversity. Here’s the second part of the ShipHawk supply chain series about the top trends impacting the supply chain right now and what you can do about it.

Membership Programs: Shipping Bonuses as a Competitive Advantage

One way that Amazon came to dominate the online retail marketplace is by creating the Amazon Prime program. The “free, two-day shipping” policy has been widely embraced and heralded by online shoppers. This is one way that Amazon has been able to distinguish itself within the realm of eCommerce. In fact, it’s been so successful other online retailers, like Walmart and Sephora, are mimicking the membership program model to compete with both Amazon and more adaptable marketplace sellers.

Shipping bonuses are just one way that etailers are luring customers to their online store and can seem like a great idea on the surface. However, there can be profound financial drawbacks to offering free shipping that need to be considered by eCommerce business owners. Amazon Prime may have millions of subscribers, but analysts estimate the program posted a loss of more than of $1 billion last year. While large retailers like Amazon and Walmart can afford significant losses, with Amazon recently turning a profit, evidence that their overall eCommerce strategy is working, most retailers can’t afford to forego the costs of shipping just to draw customers.

Smaller sellers need to distinguish their businesses in different ways—better and more specific services, tailored to customers and local markets, or using social media to enhance the customer experience. When smaller-sized retailers do end up competing on price, they are forced to optimize their logistics processes and supply chain to keep margins intact—a move that ultimately proves helpful and healthy for their business. To learn about the other trends impacting the supply chain and how to proactively react to them, download our white paper Five Trends Changing the Supply Chain Landscape as We Know It