What Fast Delivery Means

Our definition of fast delivery just changed.

Same-Day Delivery

History

Nineteen years ago, Amazon charged us an extra $9.48 for two-day delivery while one day was $16.48.

But then, during February 2005, they created Amazon Prime. For $79 a year, in two days, we could get our delivery. And, they discovered that faster delivery times balloon order volume:

Consequently, we’ve moved from two-day to one-day to same day.

While from our end it seems easy, it’s not, especially for Amazon. In a recent NY Times article, we learned that they have a limited number of people whom they can service on the same day and and that earlier is better. As a result, lots of people are disappointed when a same day delivery fails to arrive. However, Amazon is scrambling to open a network of same day distribution centers. Unlike Walmart, they don’t have stores that can quickly dispatch orders.

Same-Day Facts

Below, McKinsey tells us that time indeed matters:

Meanwhile, according to Capital One shopping research (which does not display academic rigor), approximately 40% of us will pay more for same-day service, 30% expect it to be free, and 23% will pay more to get an order within three hours.

Although at least four years old, the following data offers some insight about our same day tendencies:

In addition, Capital One used the USPS survey to demonstrate why we reject the same-day option:

Reference Points

Looking at what we call fast delivery, behavioral economists would say that our reference points have shifted.

To see what they mean, I always like a gas price example. When the price per gallon is dropping from $3.00 to $2.75, we think gas is cheap. However, when the price rises from $2.50 to $2.75, the same amount can feel expensive. The reason? The context or frame for our decision has changed.

With package delivery, we have a very different reference point from 2005.

Our Bottom Line: Demand and Supply

As economists, we should connect delivery times to demand and supply. While faster times certainly increase demand and shift demand curves to the right, for supply, it’s a bit more complicated when logistics have to change and cost ascends.

My sources and more: For the same-day delivery, the NY Times and McKinsey had the stories. Next, do look at this U.S Postal Service report. And after that, if you want to read more about reference points, anchoring, and behavioral economics, I recommend Nobel Laureate Daniel Kahneman’s excellent Thinking Fast and Slow.

Please note that our featured image of a Bronx same-day Amazon distribution center is from the NY Times. Also, whenever we say free delivery, as economists, we know there is no such thing as free (TANSTAAFL).