Amazon (AMZN 0.87%) is on the right track when it comes to same-day deliveries among younger shoppers, according to two new surveys. Fraud prevention company Trustev recently reported that 56% of consumers between the ages of 18 to 34 now expect retailers to offer same-day shipping. Another survey by Coldwell Banker Commercial Affiliates discovered that 64% of that demographic would more likely make an online purchase if a same-day delivery option was offered.
Image source: Amazon.
Trustev CMO Rurik Bradbury told Multichannel Merchant that millennials are "mostly digital natives," and that the "younger half grew up knowing nothing but online apps." His company's survey also found that 94% of millennials expected real-time order updates, while 93% wanted the ability to cancel an order anytime before shipping. Besides Amazon, not many retailers tick all those boxes, which could give the company a huge advantage over both digital and bricks-and-mortar rivals among younger customers.
Amazon leads same-day deliveries
Amazon introduced same-day delivery in certain markets six years ago. Fees were lower for Prime members, but they often still weren't economical, especially when combined with the tip for the courier. A delivery fee of $6 plus a "recommended" tip of $5 meant that consumers had to pay a $11 premium for instant gratification.
That's why Amazon recently introduced free same-day delivery on eligible orders over $35 for Prime members in certain cities. Tips are still recommended, but it suddenly made more sense to place smaller same-day orders. Amazon hires various contractors for the deliveries, but it's reportedly been experimenting with a crowdsourced delivery model that pays ordinary people to drop off packages for customers. It also plans to use drones for deliveries once they receive regulatory clearance.
Amazon has also been testing out same-day pickup services in select areas. In several markets, it offers Prime Fresh, which merges same-day grocery deliveries with a regular Prime membership for $299 per year. It's also slapping connected buttons everywhere for automatic reorders of consumable products like toilet paper or detergent. All those initiatives are helping Amazon extend its lead in same-day deliveries over rival companies by a comfortable margin.
Amazon's Prime Air drones. Image source: Amazon.
Competitors are taking notice
Bricks-and-mortar companies, many of which were turned into showrooms by Amazon's e-commerce growth, have noticed that lead. Companies like Wal-Mart (WMT +0.95%), Target (TGT +1.37%), and Macy's (M +0.27%) have all been expanding their same-day delivery options. These players have one distinct advantage over Amazon: They can use their brick-and-mortar stores as fulfillment or pick-up centers for deliveries.
Wal-Mart, which has dabbled with same-day delivery since 2012, is testing out a same-day grocery pickup service in select markets. It's also testing out a subscription-based service for unlimited three-day free shipping on over a million products with no minimum purchase required.
Target recently teamed up with Internet-based delivery service Instacart to offer same-day drop-offs to customers. Instacart's fees start at $4 per order and rise based on the overall size of the order. Macy's, which has struggled with declining mall traffic, recently expanded same-day delivery to 17 new markets.
Don't forget about Alphabet
Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Express is another challenger. The service charges flat fees between $5 to $8 per order, or $95 per year for unlimited orders, and there's no need to tip. Like Instacart, Google Express helps brick-and-mortar retailers deliver goods to their customers.
Alphabet's strategy is to convince more people to use Google for product searches instead of going straight to Amazon. The more time people spend on Amazon, the less search queries Google processes, and the less data it mines for targeted ads, which could translate to less ad revenue. Unfortunately, Google Express has looked pretty weak recently. The unit lost two of its top execs over the past year, and the company shuttered two delivery hubs in the tech-forward Bay Area.
Why Amazon will prevail
Amazon's bricks-and-mortar, e-commerce, and ecosystem rivals will keep trying to catch up to its same-day deliveries, but they'll likely fall behind for one simple reason: Prime. For $99 per year, Prime members get free deliveries, discounts, streaming media, cloud storage, free e-books, and other perks. Amazon has expanded that ecosystem from the digital market to the physical one with devices like the Kindle Fire and Fire TV. Companies like Wal-Mart and Alphabet don't offer comparable features with their delivery subscription services.
Research company CIRP estimates that nearly half of Amazon's U.S. customers, or 44 million people, are already Prime members. Those are all people who would be more inclined to use Amazon's delivery services over competing ones. Prime members already spend an average of $1,200 per year on Amazon, versus $700 for non-members. An increasing dependence on same-day deliveries will likely boost that figure. Unless its rivals can disrupt the growth of that ecosystem, Amazon will likely prevail as the top dog in same-day deliveries and win millennials' shopping dollars in the process.
