Shipping carriers are looking for ways to differentiate themselves. Are loyalty programs the answer?
I was having dinner the other night with Peter Oxley, a very forward-thinking expert on loyalty programs and CEO of RewardStream. I mentioned I didn't understand some retail loyalty programs that charge an annual fee and whose only real benefit is reduced shipping charges (such as Amazon Prime). In effect, you're just prepaying a year's worth of shipping, so what's the real benefit?
It doesn't make sense to pay an annual shipping retainer at Amazon and hope my purchases make it worthwhile. It does make sense, however, to join a similar program hosted by the shippers themselves. In other words, if you're really just subscribing to the retailer's shipping program, why not do this directly through FedEx or UPS? Carriers should disintermediate retailers and offer benefits for using the same carrier, much in the way credit cards offer loyalty incentives for using their credit cards to make purchases.
Many retailers have integrated the Verified by Visa program into their checkout processes. A pop-up window appears during checkout if you use a Visa card, requesting your Visa account password. This provides an extra level of security and fraud protection for you and the retailer. It's a horrible user experience in its current form, and I'm not recommending a similar one for shippers. Yet it does illustrate one way service providers can intervene in the checkout process. A better user experience would make this more transparent. Travelocity, for example, allows you to enter all your frequent flyer numbers in advance instead of asking for them at checkout.
If UPS had a membership program, I could either enter my UPS username and password at checkout or store it in my user profile at the online retailers I use. When I choose UPS as a delivery method, special programming code would retrieve my preferred pricing in real time from UPS.
That makes more sense than belonging to several retailers' membership programs (if their only benefit is reduced shipping). I may not shop at one retailer enough during the year to make the program worthwhile. But I certainly have enough packages delivered in a year to make a membership to a carrier program worthwhile.
If this kind of program existed, my shipping costs wouldn't be based solely on how many products I ordered from one retailer. It would be a combined price that took into account the number of products from that retailer I order, and the number of general shipments I've placed with the carrier over the course of the year. I may get free or reduced shipping, for instance, from a retailer from whom I've never purchased simply because I chose FedEx and am a platinum member of the FedEx program. Shippers could charge for this membership program, but they probably don't need to. Simply getting that much more business from customers might pay for the program. (Charging someone for loyalty is an odd idea, anyhow.)
Currently, free shipping is a magic pill retailers use to try to increase sales. Real loyalty, however, doesn't come from these kinds of promotions. The customers interested in your company because of the promotion are happy to look elsewhere once your promotion ends. Real loyalty comes from brand differentiation, superior user experience, products, and customer service.
By leveling the playing field and making shipping charges an externally controlled factor, retailers would finally have to look for other (better) ways to retain their customers. This would not only lead to better user experiences but also engender real loyalty for retailers who do it right. Moreover, it would let the little guys (who can't offer free shipping without taking a huge hit on their bottom line) compete with larger retailers and encourage customers to shop at companies that offer the best products, not just those that offer the lowest shipping. It would also take the burden of free-shipping promotions off retailers, who currently lose money on shipping.
For shippers, a program like this would brand the shipping process much more clearly and encourage users to have a real preference over which carrier to use. It would also enable carriers to learn a lot about their customers who have (until now) been mainly indirect customers. This can lead to better programs, pricing, and services from the carriers.
The customer wins big here, too. Instead of looking just for the best shipping rates, customers can choose which retailers to use based on more core merits (e.g., customer service, breadth of products, depth of product knowledge, etc.). Additionally, they can benefit from reduced shipping costs based on their activity across all retailers, not just one.
Shipping carriers are looking for ways to differentiate themselves. I'm the first person to say loyalty programs have run amuck, and everyone seems to be jumping on the bandwagon before they've seriously looked at other ways to increase real loyalty (without incentives). However, if programs like Amazon Prime exist solely to allow users to prepay shipping, why not let the carriers do this, too? I don't need a shipping discount membership program from Amazon. I need one from the carriers, particularly because my purchases come from many different sources over the year.
Thoughts, comments, questions? Let me know.
Until next time...
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Jack Aaronson, CEO of The Aaronson Group and corporate lecturer, is a sought-after expert on enhanced user experiences, customer conversion, retention, and loyalty. If only a small percentage of people who arrive at your home page transact with your company (and even fewer return to transact again), Jack and his company can help. He also publishes a newsletter about multichannel marketing, personalization, user experience, and other related issues. He has keynoted most major marketing conferences around the world and regularly speaks at Shop.org and other major industry shows. You can learn more about Jack through his LinkedIn profile.
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