“We’re currently working on evolving our Prime free Two-Day Shipping program to be a free One-Day Shipping program,” said Brian Olsavsky, CFO of Amazon. “We’re able to do this, because we spent 20 plus years expanding our fulfillment and logistics network, but this is still a big investment and a lot of work to do ahead of us.”
Amazon launched Prime program in 2005. It offered unlimited two-day shipping for a flat annual membership fee of $79. Fourteen years later the price has risen to $119, and the program has expanded to include additional services like Amazon Video, but at its core, it sells convenience for shoppers not looking to price-compare before shopping. There are many of those - Prime program has more than 100 million members worldwide.
However, in the past few years, other online retailers started to catch up. Walmart was first to announce free two-day shipping, and then Target announced free two-day shipping with no minimum purchase or membership required for the holidays season last year. Both Walmart and Target focused their marketing on the fact that their two-day shipping has no membership fee, making it a better offering compared to Amazon Prime.
Amazon wasn’t sitting steady. They continued to invest in warehousing and logistics, as well as their last-mile delivery programs. Since 2011 they have invested over $150 billion worldwide in fulfillment networks, transportation capabilities, and technology infrastructure. This investment materialized yesterday in an announcement that Prime’s free two-day shipping is morphing into one-day. “But this is all about the core free Two-Day offer morphing into - or evolving into a free One-Day offer. We’ve already started down this path. We’ve in the past months significantly expanded our one-day eligible selection and also expanded the number of zip codes eligible for one-day shipping,” said Brian Olsavsky.
In New York City, for example, many products are already available with free one-day shipping. A popular item like an Apple Watch is available for delivery tomorrow. Walmart comes next with two-day shipping. Target calls its delivery two-day shipping too, but it takes two days longer than Walmart. On Apple.com the product is available for delivery on the same date as Target. Last, on Google Shopping delivery window is indicated as 3-10 days.
That’s not to say that Amazon delivers everything on-time. The Prime badge is displayed for products even when Amazon can’t deliver them in two-days. Amazon counts two-day shipping from the date the item shipped from a fulfillment center, not from the order date. The difference is processing time, which is not always quick, sometimes involving transshipping between Amazon’s warehouses.
For many Amazon shoppers, the fact that some orders don’t get delivered in promised the two-days is not a deal-breaker. Prime memberships wouldn’t be growing if it was. Instead, Amazon sells the perception of convenient shopping. Changing it to one-day is going to increase the perceived value of Prime. For those shoppers buying anywhere else, even if it is sometimes cheaper, is often not worth the extra clicks.
When Walmart launched free two-day shipping in 2017 - twelve years after Prime launched - Marc Lore, president and CEO of Walmart U.S. eCommerce, said: “In today’s world of e-commerce, two-day free shipping is table stakes.” Well, Amazon has just raised those stakes. It took competing retailers more than ten years to match Amazon’s two-day shipping; it will be even more challenging to match them again.
Amazon waited for the competition to catch up and is now playing both defense and offense by flipping the switch to enable free one-day shipping.