Insight / Blog

Money talks: How Amazon is beating the drum for PUDO

Posted on 18th August 2020

Summary: By offering discounts in exchange for consumers using Amazon Hub, Amazon might have started a rationalisation of delivery prices.

The most common question we hear from the partners we work with in the parcel world is “How do we change consumer behaviour?” They want to get more shoppers picking up and returning parcels at PUDO locations, rather than having to keep delivering one or two parcels to an address. Consolidating their volume makes perfect business sense, but wait – isn’t this the wrong way round? Shouldn’t businesses be responsive to consumer needs and wants, not trying to drive them?

The biggest and the best businesses know that this isn’t necessarily true. Consumers didn’t ask Jeff Bezos to be able to pay him $119 annually for free 2-day shipping, streaming entertainment and a free audiobook every month, but Amazon Prime is perhaps the definitional retail experience of our time. The point is, sometimes consumers don’t know they’re about to love something until they’re using it. We’ll come back to what Amazon knows about that principle later.

Before that, we have to answer the question. How do you make a difference to consumer behaviour and get them to adopt PUDO? Well, there’s a long answer and a short answer.

The long answer

Infrastructure is essential. Look at electric cars, which are slowly becoming more mainstream as more charging infrastructure is available. Early adopters were brave to venture outside a limited range of their home charging kit, but as service stations and petrol stations around the nation added charging ports, adoption became a much more feasible proposition for many more people.

Similarly, you can’t get consumers using PUDO if there’s nowhere local for them to pick up and drop off parcels. But you also need the technology to make it an enjoyable and straightforward experience, with clear communications and timely alerts, and a quick handover process. There’s no value for me in going to the local grocery store to pick up a parcel if it’s awkward and takes forever. Convenience is key, and that means much more than just the right locations – it’s about experience.

And of course, if you’ve never heard of Tesla, you’re not going to be driving a Model 3 any time soon.  Shoppers have to be made aware of the option of PUDO, which means checkout changes, prompting them to pick PUDO at delivery, and the right promotional awareness campaigns to help shoppers break out of their habitual home delivery choice.

The short answer

Money talks. Sweden has the highest PUDO adoption rate in the world. Why? Because home delivery costs carriers a lot more than consolidated PUDO deliveries, and that cost difference is actually represented in prices. The magic of the free market!


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Coming back to normal

However, that Swedish bit of classical economics is the exception in delivery, not the norm. In fact, because ecommerce has grown slowly on the back of the postal network in most countries, home delivery is seen as the standard delivery option in most markets, which when combined with the Amazon effect of increased consumer expectations and lower prices, has lead to a kind of temporary disconnect between the relative costs of providing services and the prices which are charged.

That means that PUDO isn’t cheaper than home delivery for consumers, even though it’s significantly better economically for the carrier. Partly that’s because home delivery has been massively undervalued in price terms, but it’s also because nobody is using price incentives to push PUDO. Or at least, nobody was, until Amazon started doing it last month.

Money for nothing, and collection for free

The truth will out. The brute force of unit economics can’t be overestimated, and carriers already know they stand to gain a lot by incentivising consumers to use PUDO more often. We know from our experience running a UK PUDO network that when shoppers use PUDO more than once, they averaged 13 collections annually – it’s an incredibly ‘sticky’ service that sees shoppers quickly become habitual users. Part of that is the novel feeling of control that PUDO provides. No longer feeling like you’re at the whim of the carrier, but instead can head out and pick up the parcel on your own schedule gives customers a great feeling of security, which has a massive impact on customer satisfaction. That satisfaction is what is motivating Amazon – hence their explicit reference to “when it suits you best” in the email copy.

So the biggest and most innovative carrier business out there is starting to press the “MONEY TALKS” button on consumer behaviour change, aiming to drive more of their volume through PUDO. It’s not just a push via email either. This is now homepage material for Amazon. Without wishing to read too many tea leaves here, it’s worth noting that Amazon reserves homepage promotional slots for its own products 99% of the time – you’ll see Echo, Ring, Prime & Kindle getting promoted there.

So to see them sticking a discount offer for Amazon Hub (a service that barely has any brand recognition) front and centre of that hallowed turf says something important about the place it holds in their estimation. It seems that the world’s biggest online retailer sees PUDO as central to its future in delivery.

We shouldn’t forget either that Amazon sits on both sides of the data here – as a carrier, they obviously care about improving unit economics by consolidating more deliveries, but as a retailer they have a huge stake in improving user experiences of delivery. The fact that they have seen all of this data and decided to double down on PUDO should be ringing in the ears of their competitors in the logistics space. Those competitors would do well to look for retail collaborators and find ways to work together with them, so that they too can harness the benefits of seeing both sides of the ecommerce equation in full, and collectively find mutually beneficial outcomes. For too long, retailers and carriers have had divergent aims and interests. Now Amazon is showing just how powerful the two are in combination.

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