Online sellers are suffering from decision overload. Here’s how we fix it.
I have always been fascinated with the decision-making process and why individuals make the choices they do. In particular, I wonder how we overcome what psychologist Barry Schwartz calls the paradox of choice. How do we decide what to do when we feel like there is never enough data or when there are too many options? And what about that feeling that if we just wait another day or week, maybe we will make a better decision because we will know more?
This is the paradox. Choice is good; too much choice halts us in our tracks. Explaining the problem with choices in his article for Harvard Business Review, More Isn’t Always Better, Schwartz writes that when faced with too many options we experience “choice paralysis”. Plus, once we make a decision, we are less satisfied with our selection. Apparently, knowing that we have so many other options leaves us with a lingering feeling of FOMO (fear of missing out).
This abundance of choice and the accompanying paradox is present now more than ever in the changing landscape of the ecommerce industry.
In my capacity as Co-Founder at ecomBLVD.com, and through my previous role as a Co-Founder and CEO of SimpleGlobal.com, I’ve had the rare opportunity to sit in the front seat and witness the massive growth of ecommerce from both an online seller’s and a vendor’s perspective. Working with and watching brands such as formlabs and MVMT turn ideas into disruptive organizations serves as a reminder of the potential of ecommerce. Although I witnessed entrepreneurs Jake Kassan and Kramer LaPlante turn their watch passion into a global company that was recently bought out by Movado for $200 million, I know the ecommerce industry is still nascent, growing, and evolving.
In his article, US E-Commerce Trends and the Impact on Logistics, Michael Hu cites Forrester’s Online Retail Forecast which indicated that ecommerce is growing at an annual rate of 15%. In comparison, traditional retailers are experiencing an annual growth rate of 1–2%. Hu also notes that e-commerce sales currently account for only 8% of all U.S. retail sales, but this percentage is expected to reach up to 14–16% ($1 trillion) by 2022.
This means ecommerce will double in the next four years.
What about the services and vendors behind these sales? Will the ecommerce service provider industry double in size by 2022 as well?
YES! And service providers comprise the majority of the market!
The numbers here are massive. According to data collected by IBISWorld, $84.20 of every $100 in ecommerce purchases goes to ecommerce service providers.
These ecommerce service providers include 3PLs (third-party logistics) and delivery companies, online shopping cart platforms, software apps, and marketers that support and facilitate every ecommerce purchase. As the ecommerce industry continues to expand, spending on support services will expand with it. Moreover, the number of actual vendors providing services will continue to grow at a rapid pace.
Here are some examples of that rapid growth in action.
Shopify’s App Store is on fire
In 2010, one year after the launch of the Shopify App Store, the ecommerce platform’s Year in Review infographic proudly announced that store owners could choose from a selection of 47 different apps.
Today however, there are over 2,500 apps available at the Shopify App Store.
And the breadth of services provided by the influx of apps is impressive.
Service scope is swelling
For example, fraud protection was once a service only enterprise-level firms like www.borderfree.com could provide to their large customers such as Macy’s. Comprehensive fraud protection for SMBs was almost non-existent. Today a Shopify App Store search for fraud apps yields 31 results.
And returns processing? This segment of ecommerce has exploded. When ecommerce was in its infancy, online brands hoped that their 3PL could and would handle customer returns. But now, returns processing has grown into a full-blown industry known as reverse logistics. According to the Reverse Logistics Association, product returns add an estimated 7–11% to the cost of ecommerce products. In the ecommerce apparel industry, returns can account for as much as 40% of costs.
When I started working with new ecommerce brands in 2013, some of them had no out-of-the-box returns solutions that could be integrated with our warehouse fulfillment service. Now, there are more than 200 returns processing apps available through the Shopify App Store. But which one do you choose?
Logistics Service Provider choices are getting more complicated
Online sellers also face the paradox of choice when selecting their 3PL service providers. And, these decisions carry with them significant consequences if not done correctly, since switching service providers is not always simple. The current ecommerce logistics market is highly fragmented with larger companies only owning a small fraction of the transactions.
CH Robinson, the largest 3PL player, owns only 6.6% of the total market. However, if you are a small seller, good luck approaching CH Robinson. If you are a brand that needs to fulfill less than 1,000 orders per day, you may not be taken seriously.
Perhaps the lack of access to these large providers is why there are over 14,000 3PL providers in the United States alone. And, that number is still growing. It is anticipated that another 900 3PLs will join the competition by 2023.
Of course, once an ecommerce seller has found a provider to warehouse its products, decisions about how to ship the goods remain. Like the rest of the ecommerce industry, delivery options are also changing drastically. Amazon’s push to locate their fulfillment centers next to metropolitan areas to achieve same-day or next-day delivery has triggered a rise in the number of regional players.
Despite their extensive infrastructure and brand recognition, UPS and FedEx combined only account for about 75% of the ecommerce delivery market. The U.S. Postal Service plus a combination of regional service providers are responsible for delivering the remaining 25% of ecommerce products to customers. Recognizing the potential for vertical integrations, these players are now starting to enter the fulfillment picking/packing arena. This is evidenced by DHL Ecommerce’s expansion of its ecommerce fulfillment internationally and UPS’s launch of the Ware2Go platform.
Adding another layer of complexity to delivery logistics, existing fulfillment centers are looking at alternative delivery options. Many fulfillment centers have begun working closely with the USPS in order to deliver products to their regional posts offices, cutting both UPS and FedEx out of the equation.
As the ecommerce industry continues to grow and evolve, how will ecommerce sellers overcome choice paralysis and make decisions for their businesses with confidence? How do ecommerce vendors help sellers make those decisions and differentiate themselves in the market? How do you make decisions for your ecommerce business?
It was by asking myself those questions that the idea for ecomBLVD.com was born. Today my work involves bringing online sellers and service providers together, helping to alleviate choice paralysis. As the ecom industry grows, we need to find more ways to filter good choices from bad and avoid FOMO, but keep the sector alive with a diverse and healthy market of competitive service providers.
