How to Adapt to Amazon’s Latest Push for 1-Day Delivery, Part 2

Amazon.com's new Seller Fulfilled Prime (SFP) requirements went into effect on Feb. 1, 2021. Third-party SFP sellers must now show a nationwide one calendar-day or two calendar-day delivery promise on their Amazon product detail pages. Also, they must meet the strict delivery speed metrics on all such orders. For more details on the new SFP requirements, see part one of this series.

According to Amazon, the reason for this change is to ensure that Prime shoppers have the same fast delivery experience regardless of who is fulfilling the order, the seller or Amazon itself. Amazon also shared that before COVID-19, only 16 percent of SFP orders were meeting Prime shoppers' expectations.

Even though Amazon announced the changes back in August 2020, most merchants were caught unprepared. Many have or are at risk of losing the Prime badge on their listings, and hence access to 126 million affluent Prime subscribers in the U.S. As of Q3 2020, Prime members accounted for roughly 65 percent of Amazon shoppers, according to CIRP.

This change heralds a new era of nationwide one calendar-day delivery being the new normal for the entire e-commerce ecosystem. This article will share what I believe will be the larger impact of this change, in addition to offering specific strategies and tactics on what sellers can do to adapt.

Before the new nationwide SFP requirements, merchants were happy to offer SFP regionally. They could carve out a ZIP code radius around their warehouse and create shipping templates based on what products they could profitably deliver in one or two business days using economical shipping services. Using Regional SFP, merchants in California, Texas, Florida, and New York could profitably offer SFP with minimal competition between one another.

Now that Regional SFP is gone, sellers must decide whether to be all in with offering SFP nationwide. The alternative is to stop offering SFP altogether and suffer the consequences. For example, in the diagram below, if Sharon in California decides to do nothing, but Alfred in Texas, Betty in Florida, and Charlie in New York decide to embrace nationwide Prime, what would happen?

Credit: Cahoot Peer-to-Peer Order Fulfillment Network

Customers in Sharon’s region will see offers from Charlie, Alfred, and Betty ahead of Sharon’s because Amazon prioritizes Prime offers to its 126 million subscribers ahead of non-Prime. The irony is that this would be true even if Sharon is offering free standard shipping in her region. By opting out of nationwide SFP, Sharon would not only miss out on growth opportunities, but she may see a shrinking market share in her own backyard.

Once sellers figure out how to offer nationwide Prime, they're likely to provide the same kind of fast and free shipping in their other channels. Nearly all marketplaces (e.g., Walmart, eBay, etc.) prioritize free and fast shipping offers ahead of others. That is what customers want. Products with slower shipping times will be harder to discover. Those sellers may even have to compensate for that through more paid advertising or lower prices. Fast shipping is here to stay. It's not just about complying with the SFP program changes, but about preparing for the future.

Strategies and Tactics for Coping With the New SFP Requirements

Schedule Weekend Pickups With Carriers

Maintaining SFP eligibility now requires weekend pickups and deliveries. Merchants must operate at least six days a week, with Saturday or Sunday as their weekend operation. This has been a challenging decision for sellers as only a few carriers can offer pickup and delivery on weekends. As of the time of writing, only FedEx, UPS, and USPS offer Saturday pickups, while Sunday pickups are available only to select high-volume clients of FedEx and UPS. Calling carrier reps and negotiating terms for weekend pickups and deliveries would be crucial to maintain SFP eligibility and profitability. Also, note that these additional services may come with extra fees.

Credit: Cahoot Peer-to-Peer Order Fulfillment Network

Monitor Delivery Speed Metrics and Performance Dashboard

Amazon has made it clear that failure to meet the program requirements will result in SFP eligibility suspension. Merchants must routinely monitor the Delivery Speed report in their Seller Central Performance Dashboard. There's also a downloadable report where merchants can see which items are not meeting the delivery promise metric. It can help them spot problematic SKUs.

Extend Same-Day Shipping Cut-Off Time

With the standard 2 p.m. same-day shipping cut-off time, a product detail page can show a one-day delivery promise a maximum of 14 hours a day, from midnight to 2 p.m. It will show a two-day promise for the remaining 10 hours. This would be true if everything the merchant ships were being delivered in one day. See part 1 in this series for more details on how we calculated these numbers. By arranging a later carrier pickup and extending their cut-off time to say 5 p.m., merchants can quickly add three extra hours each day. This would enable more customers to see their one-day promise and, in turn, boost their overall delivery promise metrics. Merchants considering this option should tighten their operations so last-minute orders don't get left behind. Investing in next-gen shipping and fulfillment software that eliminates manual effort would help.

Identify Fast and Slow Moving ASINs

With the switch from regional to national Prime, merchants should carefully evaluate their individual Amazon Standard Identification Numbers' (ASINs) sales velocity and price competitiveness. Selling slow-moving ASINs regionally at a premium price may have been very profitable previously. However, only competitively priced, fast-moving ASINs should now be considered for nationwide Prime to win the buy box.

Verify Product Listings and Update Shipping Templates

The new SFP requirements apply to standard-sized products (packages up to 18”x14”x8” and less than 20 lbs.). SFP requirements for oversized products remain less restrictive as of the time of this article. If product dimensions or weight information is missing from product listings, Amazon assumes that they're standard. Merchants must update their Prime product listings to reflect accurate information besides fine-tuning their shipping templates for the new one-day and two-day promises in the contiguous 48 states.

Diversify Sales Channels

The National Retail Foundation found that multichannel shoppers spent $93 more, on average, to buy gifts than those who only used one channel. In addition to expanding reach, diversification also boosts sales opportunities. According to a Shopify study, merchants who sell in two or three channels respectively have 38 percent and 120 percent higher revenue growth than those that sell in a single channel. Therefore, merchants must consider selling in more channels than just Amazon. Allocate a marketing budget to drive more revenue in newer channels.

Credit: Shopify by Cahoot

Diversify Fulfillment Channels

As COVID-19 ramped up last spring and summer, many Amazon sellers were adversely impacted by Fulfillment By Amazon (FBA) restrictions. Amazon delayed the shipping of many products and stopped accepting nonessential products to FBA. Merchants couldn't have planned for COVID-19 in advance, but they can prepare for redundancy in their fulfillment channels going forward. Backup fulfillment centers can pick up the slack when FBA decides to throw a wrench into the plans. Part three in this series will explore these options in detail.

Place Inventory Closer to Customers

Placing inventory closer to customers makes one-day delivery more affordable. Economical ground shipping services can cover a decent distance regionally and still deliver packages within one or two business days. The diagram below shows approximately how much of the U.S. population can be reached with one-day delivery using economical ground shipping. The diagram also shows roughly what percentage of the people would see one-day promise on Amazon product detail pages. See part one in this series for more details.

Credit: Cahoot E-Commerce Order Fulfillment Network

Opting out of one-day delivery isn't a viable option for most sellers. For sustained growth and even survival in many cases, merchants must now offer one-day delivery in all online channels. The biggest hurdle for most e-commerce merchants remains how to do this profitably.

In the final part of this three-part series, I will explore the pros and cons of various e-commerce order fulfillment options. Part three will help brands and retailers make informed fulfillment strategy decisions on how to survive and thrive in the new normal of nationwide one-day delivery.

Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer order fulfillment network where merchants collaborate to increase their sales and margins by offering profitable one-day and two-day free shipping to customers nationwide without spending a penny more than the economical ground shipping.