$5.99 for Same-Day Delivery… What’s the Right Price and Service Level?
Is that the right price point? Amazon’s version of same-day delivery is “if you order it in the morning, you’ll get it in the afternoon” (at Grand Junction we call that AM/PM same day). AM/PM same day is lower in cost than the one hour or ASAP delivery services you see elsewhere, since it allows for consolidation of multiple orders and the establishment of an efficient route (like a bus ride). One-hour or ASAP delivery requires a direct, immediate response with little room for consolidation (like a taxi ride).
While Amazon is charging $5.99 per same-day delivery, their actual cost is even lower. With their new forward-deployed warehouses, technology-enabled fulfillment, and tremendous volume, Amazon has the most efficient and high-scale supply chain possible. There is plenty of room for Amazon to drop that price. In fact, Amazon could go as far as giving AM/PM same-day delivery away for free for Prime customers, since the cost for AM/PM same-day is not much more than the cost for the next-day ground delivery they currently give away for free.
If Amazon commits fully to the new AM/PM same-day service level, imagine their advantage: the highest service level in the market, performed at a price no competitor can match.