The Hidden Cost of Third-Party Logistics (3PL)
As part of Solutions Review’s Contributed Content Series—a collection of articles written by industry thought leaders in maturing software categories—Mikel Lindsaar, the CEO and founder of StoreConnect, points out some of the hidden costs of using third-party logistics (3PL).
If you’re a small business owner or a C-Suite executive, you are undoubtedly looking at the escalating cost of third-party logistics (3PL) and are scrambling to find a better solution for your business. However, the real cost to your business is the sneaky methods companies like Amazon employ to effectively steal your customers from you.
In this article, we’ll show you how knowing your customer and owning your customer is the only sustainable way to scale your business profitably. We’ll introduce the concept of E-Commerce 3.0 and how to use this emerging technology cost-effectively and maintain your bottom line.
Third-party logistics companies like Amazon offer small business owners a sugary treat to hook them. It seems a viable solution. You focus on making your product, and you don’t have to worry about all the hassles of getting it to the customer. From there, you set up an account and select products. Suddenly, you’re getting orders, and you dream of going global and having millions of customers for your product. Amazon will even help you by suggesting new product lines.
But here lies the hidden problem. Don’t you dare ask the customer for their details, or you will risk being banned from the platform. But why, you may ask? Well, the simple fact is that they aren’t your customers—they are owned by Amazon. And don’t think they aren’t using their big data to pitch similar products from other suppliers to that customer.
While 3PL (third-party logistics) may seem and even be addictive in the early stages, you will not be able to tap into one of the oldest and most well-known benefits of having a great brand: word of mouth. Most great brands, even the small local coffee shop, will tell you that it takes time and money to build a brand of your own, and it can eventually lead to most of your customers coming from referrals or word of mouth. If you use 3PL, you don’t know the customer and will not see if they’ve referred you.
Small businesses have the superpower of being close to their customer, and being close to customers means understanding them. Knowing their needs and wants, behaviors and attitudes, and delighting them with human, personal service. You can’t understand the customer if you don’t know who they are, and you can’t own them if you don’t have their details like email, phone number, and so forth.
The trouble with e-commerce technology is small business owners have had to invest in multiple systems that don’t talk to each other, meaning higher staff costs and having to pay to get disparate programs to talk to each other. E-Commerce 3.0—a single platform with a single data source and truth—brings the whole sales and fulfillment process within reach of even the smallest micro business.
For comparison, bespoke systems that cost huge amounts of money have delivered these benefits to the Goliaths. But now the “Davids” of the world (i.e., the small business owner) can have an integrated marketing, sales, finance, and fulfillment system all in one. They can take care of their logistics and no longer have to give up control of their customer or their details to big boys like Amazon.
There is nothing wrong with building a high-volume, low-margin, low-cost business on Amazon. But you can’t have this and own your customer or have your true brand. If you want your own brand, that you own, and you want to make a good margin that comes with a premium brand. Then you need E-Commerce 3.0 solutions so you can wrest back and keep control of the whole customer experience.
And really, this is where small business shines.