The True Cost of Cost-Cutting for Brands

In a world where balance sheets and stakeholder returns reign supreme, the retail sector faces a challenge: balancing profitability with the preservation of branded experiences.

It's often tempting for retail brands to believe they will save money by insourcing their fulfillment and logistics. Unfortunately, that decision often doesn't result in cost savings. Brands that view their relationships with third-party logistics (3PL) providers as purely transactional are overlooking the benefits of outsourcing, including scalability, faster delivery speeds, efficiency and, ultimately, a better customer experience.

When a brand fails to deliver on its promise to the customer — whether on-time delivery, exceptional customer service or valuing loyalty — the loss is far greater than any initial cost savings. These promises are integral to the omnichannel experiences consumers expect and have broader implications that can jeopardize a brand’s long-term success.

Brands and their 3PL partners must work in collaboration, moving from a financial arrangement to a strategic partnership, especially when budgets are shrinking. Consumers have more choices today than ever before and they're buying from brands that are differentiated and make it convenient and easy to get what they want. A recent survey from Radial found “out-of-stock" items was the top 2023 holiday shopping challenge for 68 percent of consumers, and 64 percent chose to purchase their holiday items from Amazon.com due to their availability. It's paramount brands make consumers feel valued and prove their dependability to gain or maintain their business. Since this is the core competency of 3PL partners, brands should leverage that expertise.

Mirroring the In-Store Experience From Click to Delivery

Leveraging the at-home unboxing experience, e-commerce fulfillment has bridged the gap between impersonal online transactions and the personalized experiences offered in physical retail stores. By incorporating branded elements such as inserts, sample products and personalized notes, often alongside premium and sustainable packaging, the brand comes to life in your home. Some brands have mirrored Amazon's economical packaging approach, but many recognize the unboxing experience as a valuable tool for fostering brand connection and customer loyalty.

Third-party logistics companies can help brands address the scale, infrastructure, management and personnel challenges associated with maintaining positive branded experiences. They also play an integral role from click to delivery, ensuring customers receive adequate communication throughout the buying journey and receive their orders as promised.

Where Brands May Consider Cutting Costs

So, where are brands cutting costs without feeling the repercussions? Many are looking to reverse logistics — or returns — which represents a significant cost burden for brands. As returns costs have continued to increase, more companies have started charging for returns or even telling customers to keep or donate their unwanted products.

However, the biggest trade-off has been in delivery speed. Agile brands have avoided compromising on the unboxing experience, so investments in packaging have remained largely the same. In its place, brands and 3PLs have been able to identify marginal delivery timeline adjustments that still generate meaningful savings without sacrificing customer expectations. Where delivery might move half a day and drive promising savings, brands are taking advantage and communicating with customers appropriately.

Brands will continue to have to strike a balance between margins and retaining branded experiences, and partnering with a 3PL can ensure they avoid the repercussions of eliminating expenses in the wrong areas. Ultimately, customer loyalty resulting in subsequent purchases drives additional revenue which is the best way to improve profitability and growth for the long term.

Laura Ritchey is the CEO of Radial, a bpostgroup company and the leader in e-commerce solutions.