People hate paying for shipping
Welcome to Incubateme’s newsletter, curated by Alice Zhang.
Dear all,
The other day, I talked to Daily Dose founder Tricia Williams about how shipping fee remains an issue for independent brands. So I thought you’d be interested in hearing about how Amazon Prime came into play as a multi-year effort to solve people's distaste for paying shipping fees.
The author, Eugene Wei, was working as an analyst at Amazon’s strategic planning function back in the early days and was trying to figure out how to forecast the adoption rate:
… for every customer who heard of Amazon, how could I forecast whether they'd make a purchase or not? Why would some people use the service while others decided to pass?
And he summarized that, oftentimes, the enemy of a higher adoption rate is something called invisible asymptote:
For me, in strategic planning, the question in building my forecast was to flush out what I call the invisible asymptote: a ceiling that our growth curve would bump its head against if we continued down our current path. It's an important concept to understand for many people in a company, whether a CEO, a product person, or, as I was back then, a planner in finance.
It turns out that Amazon had an invisible asymptote early on but could identify and knock out the blocker ahead of the curve.
Fortunately for Amazon, and perhaps critical to much of its growth over the years, perhaps the single most important asymptote was one we identified very early on. Where our growth would flatten if we did not change our path was, in large part, due to this single factor.
…
People hate paying for shipping. They despise it. It may sound banal, even self-evident, but understanding that was, I'm convinced, so critical to much of how we unlocked growth at Amazon over the years.
Read on our featured article below to hear how Amazon Prime came into play as a resolution to unblock people’s despise towards paying for shipping fees.
And if you would like to invest in founders from our community, especially any of our featured businesses, whether through money, time, or expertise, please CLICK BELOW TO LET US KNOW!
Amazon’s invisible asymptote
…
Fortunately for Amazon, and perhaps critical to much of its growth over the years, perhaps the single most important asymptote was one we identified very early on. Where our growth would flatten if we did not change our path was, in large part, due to this single factor.
We had two ways we were able to flush out this enemy. For people who did shop with us, we had, for some time, a pop-up survey that would appear right after you'd placed your order, at the end of the shopping cart process. It was a single question, asking why you didn't purchase more often from Amazon. For people who'd never shopped with Amazon, we had a third party firm conduct a market research survey where we'd ask those people why they did not shop from Amazon.
Both converged, without any ambiguity, on one factor. You don't even need to rewind to that time to remember what that factor is because I suspect it's the same asymptote governing e-commerce and many other related businesses today.
Shipping fees.
People hate paying for shipping. They despise it. It may sound banal, even self-evident, but understanding that was, I'm convinced, so critical to much of how we unlocked growth at Amazon over the years.
People don't just hate paying for shipping, they hate it to literally an irrational degree. We know this because our first attempt to address this was to show, in the shopping cart and checkout process, that even after paying shipping, customers were saving money over driving to their local bookstore to buy a book because, at the time, most Amazon customers did not have to pay sales tax. That wasn't even factoring in the cost of getting to the store, the depreciation costs on the car, and the value of their time.
People didn't care about this rational math. People, in general, are terrible at valuing their time, perhaps because for most people monetary compensation for one's time is so detached from the event of spending one's time. Most time we spend isn't like deliberate practice, with immediate feedback.
Wealthy people tend to receive a much more direct and immediate payoff for their time which is why they tend to be better about valuing it. This is why the first thing that most ultra-wealthy people I know do upon becoming ultra-wealthy is to hire a driver and start to fly private. For most normal people, the opportunity cost of their time is far more difficult to ascertain moment to moment.
You can't imagine what a relief it is to have a single overarching obstacle to focus on as a product person. It's the same for anyone trying to solve a problem. Half the comfort of diets that promise huge weight loss in exchange for cutting out sugar or carbs or whatever is feeling like there's a really simple solution or answer to a hitherto intractable, multi-dimensional problem.
Solving people's distaste for paying shipping fees became a multi-year effort at Amazon. Our next crack at this was Super Saver Shipping: if you placed an order of $25 or more of qualified items, which included mostly products in stock at Amazon, you'd receive free standard shipping.
The problem with this program, of course, was that it caused customers to reduce their order frequency, waiting until their orders qualified for the free shipping. In select cases, forcing customers to minimize consumption of your product-service is the right long-term strategy, but this wasn't one of those.
That brings us to Amazon Prime. This is a good time to point out that shipping physical goods isn't free. Again, self-evident, but it meant that modeling Amazon Prime could lead to widely diverging financial outcomes depending on what you thought it would do to the demand curve and average order composition.
To his credit, Jeff decided to forego testing and just go for it. It's not so uncommon in technology to focus on growth to the exclusion of all other things and then solve for monetization in the long run, but it's easier to do so for a social network than a retail business with real unit economics. The more you sell, the more you lose is not and has never been a sustainable business model (people confuse this for Amazon's business model all the time, and still do, which ¯\_(ツ)_/¯).
The rest, of course, is history. Or at least near-term history. It turns out that you can have people pre-pay for shipping through a program like Prime and they're incredibly happy to make the trade. And yes, on some orders, and for some customers, the financial trade may be a lossy one for the business, but on net, the dramatic shift in the demand curve is stunning and game-changing.
And, as Jeff always noted, you can make micro-adjustments in the long run to tweak the profit leaks. For some really large, heavy items, you can tack on shipping surcharges or just remove them from qualifying for Prime. These days, some items in Amazon are marked as "Add-on items" and you can only order them in conjunction with enough other items such that they can be shipped with those items rather than in isolation.
[Jeff counseled the same "fix it later" strategy in the early days when we didn't have good returns tracking. For a window of time in the early days of Amazon, if you shipped us a box of books for returns, we couldn't easily tell if you'd purchase them at Amazon and so we'd credit you for them, no questions asked. One woman took advantage of this loophole and shipped us boxes and boxes of books. Given our limited software resources, Jeff said to just ignore the lady and build a way to solve for that later. It was really painful, though, so eventually customer service representatives all shared, amongst themselves, the woman's name so they could look out for it in return requests even before such systems were built. Like a mugshot pinned to every monitor saying "Beware this customer." A tip of the hat to you, maam, wherever you are, for your enterprising spirit in exploiting that loophole!]
Prime is a type of scale moat for Amazon because it isn't easy for other retailers to match from a sheer economic and logistical standpoint. As noted before, shipping isn't actually free when you have to deliver physical goods. The really challenging unit economics of delivery businesses like Postmates, when paired with people's aversion for paying for shipping, makes for tough sledding, at least until the cost of delivering such goods can be lowered drastically, perhaps by self-driving cars or drones or some such technology shift.
Furthermore, very few customers shop enough with retailers other than Amazon to make a pre-pay program like Prime worthwhile to them. Even if they did, it's very likely Amazon's economies of scale in shipping and deep knowledge of how to distribute their inventory optimally means their unit economics on delivery are likely superior.
The net of it is that long before Amazon hit what would've been an invisible asymptote on its e-commerce growth it had already erased it.
Know thine enemy.
Remains of the Day - Invisible asymptotes
Featured business: Pristine Sprays
Company URL: https://www.pristinesprays.com/
Location: San Antonio, TX
Founder(s): Jessica Karam Oley, Brandon Karam (first cousins)
Founded year: December 2014
✨ Tell us about yourself, your company, and how you got started.
Pristine is a brand new product category called toilet paper spray. It is an alternative to wet wipes. It is sprayed directly onto dry toilet paper to create an instant wet wipe that is actually flushable and free of harsh ingredients. It has been featured on ABC's Shark Tank, Good Morning America, and CNBC.
Pristine started in 2014 with a strange and novel idea by two first cousins (Jess and Brandon) that toilet paper spray could replace the use of pesky, environmentally harmful wet wipes, many of which are single-use plastics. We are both former lawyers. Brandon was a patent and trademark attorney. Jess worked in corporate structure, real estate, contracts, and some litigation. We joke that the legal profession was so bad that being in the potty business is a step up. In 2013, Brandon had just moved to Dallas, Texas (to work with a law firm), where Jess was living at the time. Over a casual dinner, we got on the topic of wet wipes. Jess’s daughter, who was only 6 months old at the time, was experiencing severe skin irritations caused by the harsh chemicals in wet wipes. Brandon had experienced similar issues with wet wipes. He was aware that wet wipes, even the “flushable” kind, will clog plumbing, damage city sewer systems, and potentially cause sewage overflow into natural bodies of water. So, we hopped on Google to look for a solution to our common problem. Instead of finding an easy solution, we found many other people and organizations complaining about the same problems with wet wipes. We realized that there was not a mainstream alternative to wet wipes. So, we decided to create one.
Right then and there, literally still at the dinner table, we started writing out ideas and a plan on how to create the prototypes. Of course, many innovative ideas can live and die in those days after the “light bulb” moment, and some ideas never leave the figurative “table.” But, we took the next step to create a rudimentary prototype without much concern or consideration of the long and arduous road that would lay before us if our idea came to fruition.
We began with several different scents for our toilet paper spray. Then, after significant R&D, market testing, and research, we launched our flagship product - Pristine Moisturizing Toilet Paper Spray (now called Pristine “Original”).
✨ How did you acquire your first batch of customers?
Our first Pristine users were our friends and family. We knew that we wanted to receive honest feedback on how the product worked, what the best scents were, and whether we needed to tweak any formula aspect. Unfortunately, when we launched our website, it took two full months before receiving an order from someone other than friends and family. This was a humbling experience and one of our first of many encounters with defeat that we had to overcome.
Beyond our family and friends, Amazon was instrumental in finding our first batch of Pristine users. Our launch on Amazon in 2017 was when the tides began to turn. We could use pay-per-click ads effectively to target those we believed would be interested in Pristine. Our Pristine users were pleased with the quality of Pristine and how well it functioned, so we were able to grow our positive reviews. The social proof provided by reviews helped dramatically in finding new folks to try Pristine.
✨ Did your business pivot in the pandemic? Or, how did your business start during this time?
Our business did not necessarily pivot from our primary goals, but we did encounter some difficulties, and we also added a new hand sanitizer to our product line. As toilet paper began to sell out early in the pandemic, online searches for toilet paper, wet wipes, and bathroom-related products grew significantly. Many new Pristine users were able to find us in this way. Unfortunately, due to factory shutdowns and increased hand sanitizers in production, bottle shortages quickly ensued. We spent days tracking down bottles in the supply chain to ensure that we could keep up with the increased demand for toilet paper spray. These supply chain disruptions required significant devotions of time, energy, and resources to navigate the early pandemic. We also wanted to help supply hand sanitizer due to the early hand sanitizer shortages, so we crafted a hand sanitizer with organic palm, vegetable glycerin, and natural essential oil to help provide more hand sanitizer options.
✨ What is your plan for the future? What trends do you foresee for your industry?
Our future is to grow Pristine as a more natural and eco-friendly e-commerce brand. We plan to focus heavily on our website and Amazon. We feel strongly that the future of bathroom hygiene is trending in the direction of toilet paper spray. It is the most hygienic bathroom cleansing option available that does not harm the environment or risk damage to plumbing and septic tanks. We believe that the trend toward more natural and environmentally-friendly products will continue to increase, so we continue to believe that our direction is great.
✨ Any other lessons/advice you’d like to share with other fellow entrepreneurs?
Persistence is the number one piece of advice that has helped us succeed thus far. With a potty product, we were constantly met with funny looks and less-than-ideal forecasts on the success of our business. If we had let every failure or setback end our journey, we would have quit several hundred times by now. Learning to cope with failure and defeat, learn from it, and push through it is the most valuable lesson we have learned as entrepreneurs. We combined two quotes into what became an early mantra for our company: “Never confuse a single defeat with a final defeat. Success is the child of drudgery and perseverance.”
✨ Any requests for help from our community?
We would love to chat with anyone familiar with scaling e-commerce companies. We also love to hear any thoughts and input. Whether it is good or bad, it is an opportunity to improve that we cherish.
You made it to the end!
🥇Stay in touch at www.joinincubateme.com. Follow us on Instagram: @joinincubateme, Twitter: @incubateme, or email us at joinincubateme@gmail.com.