DEEPER DIVES: Obsess About Customers, Not Competitors

Good Morning,

First, as always, thank you for joining.

A few bits of house keeping before we jump in.

This newsletter is still a work in progress, so I’m playing with different ways to work with the email headlines. Last week I dropped the name, this week it’s back but dropping the issue number. I only share that so you understand why you might see slight changes week to week.

You may have noticed additional content on LinkedIn outside of my writing. Matthew Zarzycki, Jessica Windham, and I have now done 3 LinkedIn live sessions - the last one we ran over a lunch hour and talked about UPS and FedEx. The response from the network has been fantastic and I’d love to see you all there next time we drop one.

This week I’m hoping a podcast I recorded with the team over at Sifted is released. Caleb and I get into a discussion about “Destroying the status quo” and I share the two most powerful questions I use when helping teams improve.

And lastly, I’ll be doing a LinkedIn Live audio event on Wednesday April 24 with Kevin Lawton (The New Warehouse Podcast) and Timur Eligulashvili on Parcel Carrier Diversification. Watch for updates coming on LinkedIn!

Here’s what this issue brings:

• Amazon isn’t as confident as they seemed. Years of “benchmarking” against their competitors was exposed this week. Is it really that bad?
  

• Parcel audits are wildly popular these days. Let’s get a bit crunchy and talk about some ways to cut through understanding thousands of shipments so you can drive more value to your business
  

• GoPuff hit the headlines hard. If you caught my comments, you know I didn’t think much of it. Here’s why ultrafast delivery sucks (and always will)

Big River Services Wasn’t A Spy Ring, It Was All About Small Business Insights …

That’s Amazon’s official position after a scathing report from the Wall Street Journal hit the news on Thursday.

If you missed it, here’s the TLDR:

• In 2015 Amazon started a business called Big River Services International

• It was initially set up to compare the experience of Third Party Sellers on Amazon

• The project seemed to take a turn and focused more towards information gathering about rival eCommerce marketplaces

• Staffed by Amazon employees, it’s alleged they were told to keep their ties to Amazon secret

• Amazon / Big River Services employees would not disclose their true employer to service providers

• They would attend seller conferences of competitors

• BRS did a little over a million dollars in product sales across various platforms

The question everyone is asking is “Did Amazon go too far?”

That might feel like an easy yes.

But Amazon was right when they said that benchmarking is nothing new in retail.

When I was 20 years old, I worked at the Canadian equivalent to Best Buy (before Best Buy came to Canada and before they bought out that chain - making me a Best Buy employee).

One of the key competitive practices that we had were “Shops”. The entire goal of the shop was to understand what the competition was doing, how they would frame the sale, and what benefits they would present to customers.

To do this, we had to BE the customer.

While on the clock, we would have to go to another store that had competitive product and we would act as a customer looking to make a purchase.

We would write reports and submit them to management. These reports were then used to support business decisions to remain fiercely competitive.

The strongest claim that I have seen so far against Amazon are those of industrial espionage.

While that’s a great headline, there’s no way that will ever stick.

Industrial espionage is defined as “covert activities conducted by companies to steal business secrets from competitors.”

It seems true that Amazon went to great lengths to conceal the activity, in my opinion though, there is little to no chance any of the information they ever were exposed to could be considered a trade secret.

Why?

Because it’s a common and (generally) legally acceptable practice for businesses to evaluate competitor offerings through the eyes of a customer.

This practice is widely known as “mystery shopping”. It can include visiting stores, buying products, committing to services, viewing product offerings as well as the customer service cycle. As long as you don’t induce the competitor to reveal trade secrets, you’re good.

And this is where Amazon has already started to hang their hat.

Since Big River Services was selling product (they even created a few regional brands), their interactions with eBay, Walmart, Overstock, etc. were all from the perspective of a marketplace seller.

In that context, they are a customer of the marketplace, just like millions of other businesses. They might get some different types of communication than the general public, but nothing that they were getting exposed to was a tightly held trade secret - since all of these polices, procedures and prices were going to any seller on each of the different platforms they sold on.

A little distasteful from a logo as big as Amazon, but nothing (at this time anyways) that seems illegal - and certainly not industrial espionage.

Why the secrecy then?

It makes Amazon look weak.

The headline for this email isn’t mine. It’s a quote actually.

From Jeff Bezos.

Amazon has always presented themselves as customer obsessed. That they (like Apple) didn’t really care what the competition was doing. Their focus was on the customer and getting things right for them.

It’s not hard to see why something like Project Curiosity (the original project name) seems at odds with the values Amazon was founded on.

My biggest takeaway is this.

Even for a business as big as Amazon, details matter.

How you are executing for your customers, the type of experience they have and how smooth your operations and processes are, matter.

Because the customer will never see the inside of your trucks.

They will never see your docks.

They will never know all of the different automations or personal interventions that go into getting a product to their door after they hit buy.

But they will for sure see the gaps. They will see delays. They will see failures.

And they will certainly be paying attention to how you respond.

One last thought.

If this type of activity from Amazon makes you uncomfortable, what do you think Shein and Temu are doing?

Or worse … Tik Tok Shops.

Data, information and your ability to action on them are the fuel for victory.

Those Boxes Are Breaking The Bank, And You Might Not Even Realize it

Pitney Bowes dropped their Parcel Shipping Index last week.

It’s a great report - one of the cleanest and most consistent.

This year unfortunately, it’s US only.

But trends in the US have a tendency to be pretty representative for other parts of the world.

The images above highlight why most people who help brands with parcel costs always talk about UPS or FedEx (and sometimes, USPS).

Because that’s where the volume is.

Amazon Logistics is now an option, however pretty much all of what you see listed in this analysis is their own volume (they account for just over 40% of ALL US eCommerce sales each year).

Here are the things you want to focus on to drive the best cost savings for your business.

Parcel / Service Audits

This is the simplest and most straightforward.

Have a mechanism in place to make sure you get what you paid for. But more importantly, that you aren’t paying for things you didn’t get.

There are two ways that you can approach this.

Manually, or with a system.

Please, use a system.

While it made sense to review these types of things manually when you first started out, as you scale and your sales increase, this isn’t sustainable.

Sending out thousands of of shipments a week simply takes too much time to find each parcel with a service failure (usually on the delivery SLA) and submit them for a claim.

Most providers or platforms that do this won’t charge you for it until money is recovered. If you aren’t doing this already, getting back 85% of those costs is better than 0.

Other platforms have audit services included for free with their broader service.

Whichever works best for, your goal is to make sure you aren’t paying for things that aren’t happening.

Service Types

A FedEx or UPS contract will have multiple service options. They like to make sure that their customers have the choice to use whatever option they like.

It’s a waste of time.

95% of the time you are using 1-3 main shipping options. These are the ones that populate through your website and end up being customer facing.

These days that’s usually some combination of 1, 2 or 3 day Standard and probably 1 express overnight (for those emergencies).

Focus on the services you know you will use for your customers when negotiating your contract.

Minimums & Surcharges

These two major buckets are other ways that you can focus your negotiations to where it will have the biggest impact for your business.

There are a lot.

All kinds of different things that you can negotiate on.

A few key ones to review however are:

• Minimum charge - This is basically the lowest you will be able to pay for a shipment. Even if your discount percentage would drop a charge below the minimum, you still pay the minimum.
  

• Address Correction Fees - First, use an address validation tool as part of your checkout process. That being said, never allow these charges to go through at the initial contract value, they’re absurdly high for what small change address corrections can be.
  

• Delivery Area Surcharges - Know where you are shipping. Some areas of the country will generate better results for your business. Don’t get stuck with DAS fees to your most important markets.

DIM Divisor

It’s all about weight.

The charge you pay for your shipment will be for whichever is higher - the actual weight or the dimensional weight.

Dimensional weight is an attempt to understand the space a package takes on the truck versus it’s actual weight.

It’s easy math.

( L x W x H ) / DIM DIVISOR

The higher your DIM Divisor, the lower the result of the calculation. Most shippers see a Dim Divisor somewhere between 139 to 166. If you are shipping A LOT of volume, you can see this number get into the 200s.

Why does this matter?

Based on how you ship your packages, you dramatically change the profile of your shipments.

For the image on the top, you see a much broader distribution in the sub 10 pound range.

On the bottom however, you get a ton of volume going to the 11 to 30 pound range.

That’s a massive difference to your cost base.

If you have to ship your items in particular formats, or you have to use boxes of certain dimensions, focusing on the DIM divisor of your contract is crucial.

Take the opportunity to fully analyze your shipment volume.

Connect what you are shipping to where it’s going and how quickly.

Arm yourself with all of the most important facts and information about your business if you are looking to maximize your logistics savings.

Ultrafast Delivery Has 2 Major Issues. One Destroys Efficiency, The Other Kills Effectiveness

I used to get people arguing with me all the time about ultrafast delivery.

About how it’s a pure play on economies of scale and once you hit them, you’re laughing.

That was over 4 years ago now.

Some of the biggest names that pioneered the service are now gone.

Burned through billions.

Yet VCs keep investing money into it (well, into the organizations they had already poured money into anyways).

The problem with ultrafast delivery is that it’s completely mismatched in every way. And that’s why it will always be a doomed model.

Before getting into the two problems I want to share, it’s important to understand one thing.

For ultrafast delivery to even be something you can consider (as a whole business model), your product offering has to be one that has a lot of demand, has great velocity, is relatively cheap to stock and decently resilient to damage.

These are the reasons you typically see this model applied to food. It’s one of the few segments that can tick all of those boxes.

Problem #1 - Order Value & Size

If you want to reach more customers from each inventory location, you are going to spend more time driving.

Using more time to drive, means that you have less time to pick and pack orders for delivery.

The less time you have to prepare orders, the fewer items there will have to be in the order to get someone loaded and out the door on time.

Less items, usually means a lower overall basket price.

If you flip this around to allow for larger orders, you will spend more time picking and packing.

The additional time spent there (and knowing that more bags = more weight), will slow down the overall delivery speed and the distance a driver can travel in order to hit a 15 minute promise.

So you have to have more customers within a close proximity of your inventory location.

Problem #2 - Infrastructure & Inventory

To have customers as close as you can to your inventory location (to boost average order values), you have to build more dark stores.

For each dark store, you have to completely replicate the inventory that each other dark store has.

This means that you will have a significant amount of overlapping inventory very close together. Each one of these dark stores will have different rates of sale on each one of those skus.

Forecasting and inventory replenishment becomes an absolute nightmare.

You will either be shorting orders, or you will have a treasure trove of cash tied up in hohos and ding dongs.

When you add in the complexity of perishable skus or temperature control, you end up with a system that is guaranteed to have huge amounts of waste every week.

In order to meet the delivery promise, you end up with billions tied up in infrastructure and inventory to support the sale of low margin, commoditized goods.

It doesn’t make sense.

I’m not against ultrafast delivery under the right conditions, when offered in the right way.

It does have a role to play in our modern delivery ecosystem.

What I am against however, is building your entire business on just one weapon.

It’s like a country going to war, and only using one tank - but making that tank the most expensive you can while also being the most complicated to operate.

It’s just dumb, and no one would expect that tank to win the war.

That’s it for this week. Thanks for being here.