U.S. Markets closed

U.S. Consumers Don't Value Same-Day Delivery, Despite Rush of New Services by Retailers and Carriers

BOSTON, MA--(Marketwire - Mar 5, 2013) - Consumers are much more interested in free delivery and lower prices than in the same-day delivery of goods ordered online, according to a survey conducted by The Boston Consulting Group (BCG). Only 9 percent of the 1,500 U.S. consumers surveyed cited same-day delivery as a top factor that would improve their online shopping experience, while 74 percent cited free delivery and 50 percent cited lower prices.

Same-day delivery has become the latest retail battleground, with Wal-Mart, Nordstrom, eBay, and many other retailers starting to offer the option to consumers in selected markets. These moves are widely viewed as a response to Amazon.com, which has been offering same-day delivery of selected items in certain cities since 2009.

Same-day delivery failed during the dot-com era, when e-commerce was still in its infancy. BCG's survey suggests that consumer needs have not changed much.

The survey did find that "affluent millennials" -- ages 18 to 34 and with a household income exceeding $150,000 -- who live in urban areas might be an attractive market for same-day delivery. While these consumers make up only 2 percent of the market, their online spending is about two times more than that of the average U.S. consumer.

Economics dictate that retailers should offer same-day delivery for only a select number of products that are small and light and that carry high margins. Electronics, office supplies, and apparel are likely candidates.

"Same-day delivery will be a niche service in the near future," said Rob Souza, a partner at BCG. "Retailers may choose to offer it to build customer loyalty, enhance brand awareness, or keep up with the competition. But it is unlikely to generate significant revenues for either retailers or carriers."

Affluent millennials are willing to pay up to $10 to receive a delivery the same day, according to the survey, while other consumers are likely to pay up to $6, less than the fee charged by most retailers today. At those rates, same-day delivery would generate between $425 million and $850 million annually in delivery revenues if -- as the consumer survey data suggest -- up to 2 percent of online orders are fulfilled on the day of purchase.

Despite the relatively modest levels of anticipated revenue, several startups, such as Shutl, Zipments, Instacart, and Postmates, have flocked to the space, and established carriers, such as the U.S. Postal Service and Federal Express, are also running tests.

New York and San Francisco, densely populated cities, are the sites of many of these tests. BCG's analysis suggests that Boston and Washington, which have large shares of affluent millennials and population densities similar to other U.S. cities, would be more promising places to test national acceptance of same-day delivery.

"National carriers are understandably looking to expand their portfolio of offerings, guard against innovative competitors, and protect share from smaller, specialized players," said Mel Wolfgang, a senior partner at BCG. "But they need to be selective in their approach and test scenarios before committing to large rollouts, and they need to experiment creatively with new technologies and partnerships with regional carriers."

BCG fielded the survey last November, eliciting a sample that was representative of the U.S. population in terms of gender, ethnicity, age, and household income. Members of the firm's Transportation and Logistics practice, Retail practice, and Center for Consumer and Customer Insight analyzed the data. Additional findings will be released in an upcoming report.

To arrange an interview with one of the report's authors, please contact Dave Fondiller at +1 212 446 3257 or fondiller.david@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit bcg.com.

About bcgperspectives.com

Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back almost 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed via PC, mobile, iPad, Facebook, Twitter, and LinkedIn.