Unlimited Next Day Delivery? Hell Yeah!: The High Cost of Cheap Delivery

Now, I’m sure any avid online shoppers (which would be the vast majority of students – especially just after that sweet student loan drops) can relate to the well-known struggle that is delivery cost. You take your time browsing through the sale section for items that you frankly don’t really need, or just scrolling through Office’s trainers as a means of procrastination when you find something you want! You’ve accepted the price and head for the checkout however the delivery conditions are not as attractive as the Nikes you’re about to buy. Standard delivery roughly stands (pun fail?) around the £3/£4 benchmark and the ideal next day delivery will set you back a good £5-£7. It always seems that no matter your basket total (be it £ or £££) that delivery charge always has you umm-ing and ahh-ing.

What some companies have done to resolve this dilemma (just kidding, to get you to spend more money) is to throw in a little deal whereby spending over a certain threshold paves the way for the oh so very attractive free delivery. But the marketing team behind Asos have gone a step further. The largely renowned online fashion and beauty retailer have introduced Asos Premier Delivery whereby a cheeky £9.95  gets you unlimited next day delivery all year round. Now to the average person, this looks like a great way to save money. Surely Asos have made a mistake and this would mean they end up spending more on express delivery, right? Wrong.

The clever wits over at Asos have delivered (pun not intended) the classic Loss Leader technique to us. This model dictates that if a business provides an item/service with an extremely low (or no) charge, it will result in an initial loss. However, in doing so, they will attract more customers into stores (or in this case on to the webpages). This results in them buying other (or more) products/services which ultimately makes the business more money $$$! (Hess & Gerstner, 1987). For example Gillette's use of the loss leader model cut razor handle prices extremely low but still turned over a hairy profit by the mass sales on disposable razor blades. In sum, Asos Premier appeals to shoppers as it means they don’t have to worry about the bane that is delivery costs/times but what they don’t realise is this invites them to shop on Asos more frequently and thus spend more money.

This shrewd manoeuvre is also a form of membership; shoppers are subscribing to a year's supply of unlimited delivery. Research by Meyer-Waarden (2008) generally concluded that membership holders spent significantly more than non-members did.

Table 1. Quantitative data on consumer habits exhibited by members and non-members of the given supermarket. 

Note - The Zones represent different geographical areas.

The table above (Meyer-Waarden, 2008) depicts the significant (p < 0.0001) differences between member and non-member consumer behaviour whereby members had a higher average and total store basket amount per year and purchased more often than non-members per year. These patterns were also consistent across location. The idea behind this is that being a member is a form of commitment between the customer and company (they commit to free delivery and I, essentially, commit to placing orders). In a sense, committing to unlimited annual delivery implies you will and do shop there frequently over the course of the year, therefore subscribing to this cheeky deal encourages us to be consistent with this idea.

All in all, although Asos seem to be losing out on the money they could be making if Asos Premier didn’t exist (</3), the effect this combined strategy has on spending behaviour results in a higher number of overall sales which covers the cost of the delivery loss.

References:

Hess, J. D., & Gerstner, E. (1987). Loss leader pricing and rain check policy. Marketing  

                        Science,  6,358- 374.

Meyer-Waarden, L. (2008). The influence of loyalty programme membership on customer                             purchase behaviour. European Journal of Marketing, 42, 87-114.