Randy Weber

Launched in 2004, Amazon Prime is a loyalty program for Amazon.com shoppers that gives them free 2-day delivery on most items and $3.99 next-day delivery. Amazon Prime costs $79 per year.

According to Businessweek, four million online shoppers have signed up for Amazon Prime. These members have increased their purchases 150% since joining the program helping Amazon to grab market share from both online and offline merchants. For consumers, they get their products faster and cheaper. The combination of an extremely wide product selection, 2-day delivery, no shipping charges, and no sales tax (in many instances) makes it hard for other e-commerce sites to compete with Amazon on price and overall customer experience. It’s also a very hard program for all but the largest, most sophisticated e-commerce players to replicate.

But this difficulty for smaller players creates a huge opportunity for a logistics company to step in to help these companies compete.

If I were a logistics company, I’d create a white-label version of Amazon Prime and shop it to second-tier e-commerce players. There is no other way for these players to compete with Amazon, so they’d almost be forced to jump aboard. Whichever logistics company does this will be in position to take market share from their competitors. Plus it reintroduces price competition into the e-commerce space which will benefit consumers. In this case everyone wins – the e-commerce sites, the logistics provider, and consumers – except for Amazon which all of sudden finds their hard-to-replicate loyalty program suddenly copied and put into large scale deployment.

Imagine a $100 price tag for the shipping program for the consumer. It’s split 50/50 between the logistics company and the e-commerce site that sells it. For the e-commerce site, it also comes with deep-discounted shipping fees in exchange for exclusivity for anything shipped under the program.

There could be three approaches:

1)      White-Label – The program is only available through the particular e-commerce site that sold it. Much cleaner implementation, but less value if you don’t have enough products to justify someone essentially pre-purchasing shipping in bulk.

2)      Consortium (similar to the idea in the article) – The program can be sold by multiple e-commerce sites and works with all participating sites. The revenue would probably be split differently, maybe 80/20 with the logistics company keeping the bigger chunk. In exchange, the e-commerce sites would get even steeper shipping discounts to offset the loss of upfront money for joining the program. The consumer would benefit from having more low-price, quick delivery options.

3)      Hybrid – The program is available as either a white-label solution or a part of a consortium with the choice being up to the e-commerce site.