My last blog detailed the recent entry by Amazon into the shipping and air cargo industries. I provided tips regarding what companies currently occupying these spaces can do to stay ahead of the Seattle-based conglomerate. But I also promised to explore where these companies have actionable opportunities to ramp up their analytics and potentially dominate the market.
First, the obvious: Amazon uses advanced analytics in every aspect of its business. When they apply this analytical rigor to the shipping industry, companies that do not implement similar tactics will see their pricing actions consistently outmaneuvered and business taken away.
As I mentioned in my previous blog, companies cannot and should not attempt to match Amazon’s business practices. However, those that cannot present credible, high-level numbers to back up their business proposals and contracts will see clients begin to disappear.
There are two techniques freight forwarders should consider implementing:
1) Behavioral Segmentation. Rather than relying on dated business segments and a one-size-fits-all solution utilized by much of the industry, those that leverage their unique business models and historical data to study which products and customers generate the most volume and profit will be able to use that information to adjust prices accordingly.
2) Price Sensitivity. Freight forwarders that use their wealth of transaction-level data to measure how sensitive customers are to price can make the necessary changes to streamline processes and determine how much they should raise or lower rates, driving profitable growth.
These same techniques should be implemented by air cargo companies. As Amazon invests more resources into understanding the industry, it will begin to realize where costs can be cut and prices can be lowered. Companies that prepare for this will be much better prepared to stay competitive and retain current clients.
It’s important to remember that these bespoke solutions have seen huge success in the U.S. retail market. Using a myriad of competitor and merchant data, companies have been able to scientifically determine where and when lower competitive prices should be matched, as well as answering when value-added components offset higher prices.
In fact, one leading consumer goods retailer saw a 6.8 percent revenue uplift when using this targeted approach, with 30 percent uplift in select product lines, equating to tens of millions of dollars when extended across the organization.
Additionally, global shippers already have seen successes using advanced analytics. One major ocean freighting company used comprehensive statistical analysis to develop an analytically driven pricing framework and corresponding strategy. This approach identified an opportunity to lift gross profit by 4.2 percent annually, driving change across analytics, data management, corporate strategy, business processes and operations.
These types of investments prove that profitable growth is not impossible in the shipping industry. Companies that invest internally to identify where opportunities exist to drive revenue growth are much more likely to succeed than those who simply price match against competitors.
There is still much to learn and consider when determining what techniques and strategies shippers and air cargo companies can implement to combat Amazon. To learn more about these issues and where companies should go from here, you can read my Supply Chain Management Review article.