This week I interview Cliff Cancelosi, ex-Amazonian and fulfillment expert, about the importance of fulfillment and customer acquisition.
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Transcript from video
Kimberly:
Hi, this is Kim with CSG consulting and thanks for joining me. This week we are interviewing Cliff Cancelosi and we are going to be talking about fulfillment and eCommerce and how it relates to customer acquisition. Cliff, thanks for joining me. Before we get started, can you tell me a little bit about what you've been doing since we left Amazon?
Clifford:
Yeah so for a while I was the Chief Technology Officer drugstore.com, part of the team that led the acquisition drugstore by Walgreens and then I've been at large companies like Sears trying to help them figure out their services business. Most recently I'm at Simms Fishing Products running the direct to consumer business.
Kimberly:
Yay. Awesome. So you and I are both like at pro, fairly avid fly fisherman. So this is great. Or fly Fisher people, FOD, Fisher, anglers, um, anglers, um, the gender neutral. So this is great that, that's kind of tied us together over the years, which is pretty cool. So what I want to talk to about today is fulfillment and how important that is to e-commerce. So how important do you think that fulfillment is to any eCommerce business?
Clifford:
Well, I think that it's one of the most critical aspects of the business because in an eCom world, fulfillment is your storefront. It is the physical manifestation of your shopping experience. The other thing I think that's really interesting about fulfillment is Apple pioneered this delight of unboxing and now there's a lot of talk about how excited people are about seeing their Amazon smile packages. There's a lot of endorphin rush around it. It's exciting. And so if you're fulfillment experience from shipping to actually unboxing and everything around that isn't top-notch, it's a big let down in terms of your whole entire purchasing experience and your interaction with the brand.
Kimberly:
Yeah, I totally agree. That's something I talk about a lot on my podcast and I completely agree. It's the first physical experience the customer has of your website. And I think that companies in general, devalue that and they don't focus on it enough, but, the whole unboxing thing is a thing now where people post their unboxing - it’s a big experience, but also there's the aspect of it not arriving on time or orders getting canceled. How do you think those impact customers as far as things like loyalty?
Clifford:
Yeah, they're huge. With respect to where a lot of companies are and in particular a lot of direct to consumer brands that are now making the transition from a wholesale model into this direct to consumer business. They're missing a really critical point. And that point is something that Amazon jumped on maybe a decade at least ago, which is it doesn't really matter when a product ships, it matters when it arrives and the bar has been set around fast delivery and what day am I going to get it? And then setting that date and then earning the customer's trust to actually hit that date is really important. There's nothing, if you think about it like a fishing trip and you get online and you go to Simms and you order a pair of waders and we tell you that they're going to be there Thursday and you're leaving Friday and we've missed that deadline for you, then your experience and your feelings about the brand are going to be forever tainted by that experience.
Kimberly:
One of the things I talk about too is that in my experience we call it “the dog's not barking”. In today's eCommerce world, the customer just walks away quietly and goes to the next website that sells almost the same product, if not the same product from what's the same exact price. They just walk away and they don't necessarily call you and tell you they're upset. I think companies lose track of that because they don't necessarily measure the impact to the customer when they have a bad fulfillment experience. Do you think that's true or do you think companies are getting better with that?
Clifford:
No, I think missed promise is a metric that just doesn't exist in the vocabulary of many retailers. In general fulfillment is not really seen as a marketing channel, which it is a customer acquisition or retention channel, which it is. It's generally seen as an operating expense. I think that this is a dangerous place for retailers to get to, they see fulfillment as potentially a revenue center. So they're up charging and creating revenue on top of your shipping costs, which doesn't really help the customer. And it's not really generating that much revenue, but falling into a trap of, well, I can turn an operating expense into a revenue stream.
Kimberly:
That's interesting. That's not something I've contemplated yet. So is it just because they want to drive revenue to cover extra expenses with the eCommerce business? To me, and I'm sure to you, it's very counterintuitive because coming from Amazon, the making money on shipping was like, it was just break even on shipping. We're not trying to actually make any money on this because to your point, it doesn't serve the customer. So what do you think striving matches a desire for revenue or a misunderstanding of the customer experience?
Clifford:
I think it's a little bit of both and I've seen it both ways. The one way is that in a lot of smaller retailers, operations will report into finance and so in a desire to turn an operating expense division into a revenue generating division, they see an opportunity. The other more common reason is that there's a strong belief that the shipping component should actually be revenue positive. Why would you have an operating division that couldn't generate a profit? And that's one of the debates I've had with CFOs in the past. And then more importantly that revenue, whether it's only a couple hundred thousand dollars a year, is now baked into plans and P baked into EBIDTA. So it becomes something very challenging to take away over time.
Kimberly:
Right. Because they baked it into it and they've justified investment with it. So this is actually super interesting and it kind of plays into what we've been talking about as well. Is that why companies overlook fulfillment when they're explicitly in strategy? So I work with a lot of companies on strategy and I get pulled in and, I've had so many experiences where people are just like “we just want to fulfill out of this old warehouse we've got over here” and we don't really care, and why are you asking us all these complicated questions? And it's just, you know, shit in a box. Right?
But you don't think about what I see is they don't think about how fulfillment impacts that hockey stick, right? Especially in an aggressive growth cycle. And they're like, “oh, we're just going to fulfill out of the warehouse down the street”, “we're going to put some tables and nobody cares.” I think it's somewhat because people hear that famous Amazon story. They started in the grass and that's where the door dust came from and all this history and provenance that's associated with Amazon. But I also don't think that they think about it strategically and that fulfillment will inhibit growth at some point. So why don't companies think about this stuff?
Clifford:
Marketing and just particularly digital marketing is a pretty fast and expansive spend in most companies, and the attention is really at the top of the funnel. So what are our costs around customer acquisition? How are we expanding channels to acquire customers? And the further you go down the funnel, companies are paying less attention to that experience, right? So you got back was mission and then you've got experience and then you've got retention at the bottom, and fulfillment lives at the bottom of that funnel. And the other part of it that I've observed is that companies don't perceive they perceive content. And all the things that live kind of above the brand and the brand experience as way more critical investment to like that experience and that engagement with the customer. And even at Sims where we had three box sizes and so we were typically underfilled or massively overfilled, the corrugate was the taping jobs were bad and our leadership team would receive these packages and say, gosh, this is just not the kind of brand experience we should have. Well, great. Let's talk about what it will take to improve that brand experience and why don't we think about it more as a marketing spend. I was over here in this operations bucket and it's really a kind of this dirty op ex spend and boy, do we really want to pile more money into this dirty op ex? And so they're not really able to connect the dots between the funnel and the customer experience to this thing, even though they see it viscerally in their own fulfillment expense.
Kimberly:
Right. And that's been my experience too. People have really crappy executives and have a really crappy actual fulfillment experience, right? And they do bring it to you, right? And they're like, “oh my package was wet, it was broken”. Whatever their crazy story is, never forget my famous box showed up in Italy wet - sorry, that's for another time! But they bring it to you and they complain about it, but then when you go for to ask for money for investment, they're like, oh no, no, no. We're not investing in supply chain. And you're like, and back to our original comment, it is the first physical experience you have with an eCommerce business. So I get why people don't invest in it. It doesn't make sense to me because to your point, they actually have a visceral response to it, but yet they don't want to put money into it. They'll turn around and dump hundreds and millions of thousands of dollars into marketing…
Clifford:
At drugstore.com, we, we did a lot of little extras. So we had samples. We worked with vendors, Proctor and Gamble, and other large vendors, and we would have little samples. It could be anything, but they were tiny. But even just that little extra experience, the customer feedback and our net promoter score, when you focused on that layer was so high because customers were so delighted to just randomly received these little extras that, and they were valuable even if they weren't valuable.
Kimberly:
You weren't doing coupons and things like that, you’re actually doing a physical product that they, that they perceive as…
Clifford:
It just tied the whole fulfillment experience together and there's a bunch of different ways to do that, but the point is opening the box and either seeing tons of air in it and one little product, a product that's broken or an overstuffed box or all of these things, they are creating a perception in the mind of the consumer about you and your brand, and ignoring it is maybe not necessarily fatal, but it certainly isn't going to help you with retention at all.
Kimberly:
Yeah, I see that too. And I think it's somewhat of a subconscious message. I worked with a food startup out of Seattle and it was one of the hard conversations I had with them cause I was setting up their fulfillment network and part of their brand was carbon offsetting, natural products, like this whole environmentally friendly [thing] and then we want to go design their packaging and we did pretty good on the boxes, we did recycle corrugate and on the insulation we did a fairly good job trying to keep it like corn starchy, but then all of a sudden the marketing team got involved and all of a sudden we have all these one-sided glossy leaflets that are going into this thing that and I’m thinking - hold on a second - I thought we were all about the carbon offset and environmentally friendly. These things are printed on one side. They're not double-sided, they're not recycled paper. They're glossy. They're everything that's not, that's the opposite of what you're trying to sell to the customer. And I don't think they necessarily agreed with me, but I think it definitely would have an impact. I think a customer would get this if they were clued into those things, it'd be like, wait a minute, I thought this was all carbon neutral, environment friendly, blah, blah, blah. So you're seeing that a lot too, you think?
Clifford:
Oh yeah for sure. Companies like Patagonia take that to heart. They have a message about sustainability and recyclable and they have taken that all the way through to their fulfillment processes. And so they are authentic all the way through - Simms is an authentic outdoor brand and we care deeply about water and the environment. But it's almost a bridge too far right now for us to tackle some of these complex fulfillment issues, which we know don't represent the brand as well as they could in those kinds of topics.
Kimberly:
Because you're putting bunches of money in marketing.
Clifford:
Well, yeah, it's expensive, right? And you have to figure out where you're going to, where you’re going to do those spends, but you don't have to spend a ton to make some meaningful improvements that customers actually notice. And customers are smart. They see through things that aren't authentic. And they comment on it and you'll see those comments coming in on a product rating and review that you might have to suppress because it's not really about the product. It's really about the fulfillment, if you will. And that's an interesting manifestation of how important fulfillment is. I would say 50% of our ratings and reviews are about the fulfillment, not the product and that's very telling.
Kimberly:
That's a really good point. I've seen that as well on websites, right. And then something has a three star review and you find out, well, the reason that a three star review was because 20% of the orders didn't get delivered. And that's what their comment was, “I didn't get the product soI'm giving it a one star”. It's actually not about the product. It's the fact that they didn't get it. So the other topic we wanted to talk about today was the opposite ends of the funnel, right? So we have a lot of companies are doing huge investments in customer acquisition, right? New customer acquisition like we talked about. So they're spending a lot of money on marketing you know, loyalty programs, things to get a customer to actually clue in and become a loyal customer. But then at the opposite end we have scenarios, I've worked with companies that have 15% cancel rates. That's 15% of all orders are canceled every day, and so there's this huge imbalance. So how do you think, and in your experience, how does that affect the overall e-commerce business?
Clifford:
Well, it's huge. And I think cancel rate if you kind of look at the two main root causes, um, the first is failing promise.
Kimberly:
Yeah.
Clifford:
So like, where's my product? You said it was supposed to get it, I don't have time for you. I'm going to cancel and go get it somewhere where I can trust it. The other major root cause is that your fulfillment systems are not accurate and you as a brand cancel the product on the customer. They made the order in good faith, but the fulfillment center couldn't find it and can't ship it. And so either way the customer experience is super poor. Customer wanted the item but wanted to put their trust in you. They gave you their money and then when the cancel occurs, it doesn't really matter that the brand has been tarnished because of that experience and your repeat purchases. If you actually chart out repeat purchases and you break out the customer cohorts into those that had a perfect fulfillment experience and those that didn't have a perfect fulfillment experience, you will find that repeat customer purchasing nosedives on the bad fulfillment experiences. It also drives up costs all over the place. It's driving up your customer service contacts, you know, so like not only is it a bad customer experience, it's costing, you're costing your company revenue and expense all at the same time.
Kimberly:
Yeah, exactly. And we see companies spend you know, $800, $1,000 per acquisition, per new customer, right? Major, major, major investment. Customer comes in and makes a $200 order and it gets canceled. So you didn't get anything. You just lost $1,000 on that head by not doing solo and not doing what you and I know are the basics. Which is good. Inventory hygiene, which is metrics, metrics, metrics, metrics, metrics, day to day to day, to day to data. I think one of the most profound questions I would get asked consistently at Amazon was, how do you know you're succeeding? How do you know you're winning? Because if you don't know you're winning, you don't know you're failing. And I see a lot of people who are just like, Oh yeah, we had you know, 500 orders last week and it was awesome. I'm like, great, how many did you fulfill? Well, it doesn't matter. It matters a lot. Yeah. So metrics. Inventory. Yeah,
Clifford:
because you actually don't get the revenue from a canceled order. I know this is a shocking concept, but all the 500 orders you took, if 10 get canceled, that money goes away. And this is a truism that has been around since the Dawn of time. Customers are way more vocal about a bad experience. Yeah. And, and guess where they're most vocal. Like Mo a customer generally nowadays is pretty forgiving on, for example, a website outage or a 400 page or something like that. But a real crappy fulfillment experience. They're not. And then that's when they're writing a review. They're telling their friends all of those things. So the ripple effect of the fulfillment in particular from a negative experience point is much more damaging than other things that you're doing. Even potentially being a little bit off-brand and messaging or what have you in terms of your customer acquisition.
Kimberly:
Okay, fair, very good. Great topics. So you and I talked before we started recording this session and that we want to come back and we want to talk about some of the more specifics around fulfillment and having a fulfillment be successful. And I think our next topic that we talked about was talking about the difference between a ship date and a delivery date and promise and how that shifted in the market, right? Because way back when, when we started in big eCommerce fulfillment in the early 2000s, it took three or four days for it to get there. Right. And you had to plan like five to seven days out in order for, you know, to meet that delivery promise. And that's changed significantly. So that sounds like it might be a good topic for our next session. You think?
Clifford:
For sure. I mean all of the data that we've collected over the years as well as the studies that are out there, it's in the high eighties percent in terms of conversion confidence based on when I can get it right. Not when you can ship it. No one cares about that. Yep. It's, when can I get it and can I trust that, right. Those two things are so enormous in conversion. And again, this is where, you know, there's a lot of work in, in conversion on is my detail page, right? Is this right? Is do I have the right content? You know, am I, do I have the right imagery of the products? You do all these things to put the cop the right position to make a conversion decision and then you fail miserably by not closing the deal. I'm one of the most critical things, which is when can I get, when will I actually have it in my hands?
Kimberly:
Yeah. Yes. So this will be an excellent conversation for our next event because I see it in the market as well. It's another thing when we talk about data and metrics where people are like, Oh, but we shipped 100% of our packages in 24 hours. Nobody cares.
Clifford:
Yeah.
Kimberly:
This, the fulfillment center cares. Nobody else cares. I don't. It's not what's important. So, yeah. So excellent conversation for our next session. So thanks everyone for joining Cliff and I today on our talk about some fulfillment and stay tuned, we will be back to talk about more fulfillment in and outs from some of the I would call us for so many experts in e-commerce. I think we can say that now, right?
Clifford:
Yeah. Baptism by fire 100%.
Kimberly:
I got the scars to prove it. Mental and physical, still a little bit of therapy, but that's okay.
Clifford:
I mean, there's no two ways about it. Amazon built its entire business on top of fulfillment.
Kimberly:
Yeah. And I completely agree with you that something actually said to someone the other day and they gave me kind of a scary look. I was like, Amazon is a pristine supply chain and fulfillment company with an okay website.
Clifford:
Okay. So, yeah, Bingo
Kimberly:
Stay tuned for more. Thank you so much for cliff, and we have more fulfillment in and out. It's coming for you. Thank you. Bye.