Amazon.com's (NASDAQ: AMZN) Prime membership programhas become something of the industry gold standard for retail loyalty programs. For $99 a year, members receive free two-day delivery on virtually everything they purchase on the site, including groceries, plus get access to movies, musics, e-books, and more.
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The Prime membership program from Amazon.com gives customers access to delivery on any number of items it sells, including groceries, but it's betting they'll still pay to get degraded service. Image source: Getty Images.
Although it's the measure by which competitors compare themselves, it's clear the operation isn't running as smoothly as it could be or would appear. Earlier this summer, Amazon quietly introduced a new feature called PrimeNo-Rush Shipping that in exchange for waiting five days for an item to ship, instead of two, members can earn credits to use on a variety of services the e-tailer offers.
It's an indication that problems exist in Amazon's backroom but, worse, the feature itself is horribly executed, meaning competitors may have the chance to leapfrog over the online retailer and offer a better version of what could arguably be an attractive benefit.
A logistical nightmare
The last mile of package delivery remains a difficult and costly component of e-commerce. Particularly during peak demand periods like the just-passed Christmas shopping season, bottlenecks can develop and the process can break down. A few years back, both FedEx (NYSE: FDX) and UPS were crippled by the unexpected level of demand for last-minute shipping as retailers had followed Amazon's lead and began offering free shipping without thinking about how that would actually play out.
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Since then, both shippers have implemented better planning and logistics and there hasn't been a similar recurrence, but it also caused Amazon to take a look at how it could better meet its customers needs, which led it to launch its own logistics service as well as explore the potential for drone package delivery.
Image source: Amazon.com.
Still, the process remains imperfect, and on FedEx's quarterly earnings call with analysts last Tuesday, Mike Glenn, president and CEO of FedEx Services, indicated the company has had to play hardball with some retailers, ultimately severing its relationship with them because they refused to abide by its pricing and capacity requirements for the peak holiday season.
It's also part of the reason management consulting firm Bain & Co. thinks omnichannel retailers that offer the best seamless blend of the physical store and online retail experience will be the ones to succeed. Wal-Mart (NYSE: WMT) may so far be the best in that regard with its free ship-to-store policies that most other brick-and-mortar retailers have emulated, and even Amazon sees the need for having a physical location, hence the launch of pop-up stores in major malls across the country this year.
Yet that still leaves the problem of heavy demand weighing down performance, which Amazon is seeking in part to alleviate with its no-rush shipping program. The problem is, why would anyone want to participate?
Pay more, get less
People pay $99 a year to get free two-day shipping. By and large, you already get the extended wait times without joining Prime so why pay a premium for something you already have? OK, maybe the credits offered extend the benefits of the program and make it useful? Nope. The no-rush shipping credits merely get you free e-books, instant video titles, and discounts on groceries in Prime Pantry.
Image source: Amazon.com.
If you're a voracious reader of e-books or the movie you desperately want to see isn't available in Amazon's Prime catalog, perhaps it's worthwhile to get the credits you earn by waiting longer for your package. But unless you're a heavy user of its online grocery store, there's not much there for the average customer.
Moreover, the credits have an expiration date, though Amazon doesn't tell you how long they actually last -- you have to purchase the item first and it's shippedbefore you get an email letting you know how long they're good for.
Giving out credits to customers to accept longer shipping times isn't a bad idea, but the way Amazon is doing it seems clunky and not well thought out. That could give another retailer a chance to jump in with a similar type of offer but make the credits good on almost everything in the store, have them not expire and allow them to be accumulated, and not used simply as a means to boost in-house services.
The program as it is today primarily only benefits the e-tailer, not the customer who's choosing to wait. That suggests it's an offer that few will want to take advantage of and leaves Amazon.com still confronted with a backlog of packages to deliver.
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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.