Last week Quartz published a post on how on-demand delivery services were struggling to make the economics of delivery work for them and for customers, and focused on pricing. Postmates was specifically targeted and the post gave several examples of customers who complained that the service estimated a lower price for a delivery than was eventually charged, in some cases significantly so. The post’s author, Alison Griswold stated: “pricing on other Postmates orders can be opaque, with subtotals often couched as “estimates” and other fees added to that.”
In a response, Postmates CEO Bastian Lehmann explained that retailers charge different prices for identical products depending on the store location. Prices also change over time. The bottom line is that Postmates doesn’t know the actual cost of the items customers request when they order them. Says Mr Lehmann: “as part of our checkout process, we always display to the customer the best information we have about the items they want to purchase before they get to the checkout screen. On this screen, we list all of the requested items and the prices we believe the items will cost.” The total cost is displayed as an Estimated Subtotal and customers are told that “this is an estimate and they should expect to pay the price the merchant charges when the items are picked up… If our estimated price is too high the customer pays the lower price. Charging them the higher estimated price and keeping the money for the lower in-store cost would be unfair to the customer. If the estimated price is too low the customer pays higher price. Charging the customer the lower price would be unfair to us.”
I don’t think this is an issue of fairness but rather of user expectations: customers don’t like being surprised when they receive their bill. This is similar to Uber’s stating a surge price with a multiplier versus quoting the actual cost of the ride with surge applied. In the former method, riders ended up being surprised by the total, even though they had agreed to pay the surge price (Uber is in the process of changing this.) Another example is users’ dislike of pricing surprises, especially steep increases, on Amazon’s Subscribe & Save program Users like to make an informed purchase decision and that includes knowing the total cost.
I’m taking Postmates at its word that it cannot know for sure what the final cost will be when users place an order, but could there be ways for Postmates to mitigate that surprise? Maybe, but they’d require a bit of work and a commitment to deliveries in the non-food space.
First, the sourcing: if I need Advil delivered, I really don’t care if it’s from the Walgreen’s a block away, the Walgreen’s across town, the CVS five blocks away, or the Target one town over. It’s Advil, it’s identical everywhere. Could not committing to a location help Postmates come up with a better estimate or would it make it worse, adding a degree of uncertainty to the process? Google Express does a good job at offering identical products from different locations, allowing the user to choose a price and a retailer. Searching for a product (say, Advil) as opposed to a merchant and a specific location is also more intuitive from the user’s perspective.
Second, it seems, from the few locations I looked at, that product selection is very limited. Looking at pain relief, Postmates offers only Advil PM whereas searching “pain relievers” on Walgreens.com returns 1038 results. Now, surely not all are available in store but I’m willing to bet at least 100 are, and Advil PM isn’t even the most popular. That leaves users with the alternative to order something via a Custom Order, which “allows a customer to request any item they believe is available from the location but not necessarily listed in our inventory for that particular location.” That’s convenient but again, has no estimated cost, leaving more room for misunderstanding. If Postmates really wants to invest in the realm of non-food deliveries, it has to improve its listed and priced inventory.
Third, Postmates already offers substitutions, an indication for their shoppers to continue if a product isn’t available but only offers a “store recommendation,” leaving the item out, or canceling the entire order. How about an option to cancel the product if it’s more than 10% over the estimated price?
Finally, assuming that Postmates is stuck with retailers who cannot provide the actual price for a specific product at a specific location at a particular time, perhaps the best way to quote an estimate is to go higher and base that estimated on historical purchase data, current pricing at other nearby locations and at online retailers. By providing an estimate at the high end of the price range, customers end up being pleasantly surprised when receiving their order with a refund. It’s like the IRS refund: not recommended financially, but feels really good to get.
In the end, it doesn’t matter how fair Postmates thinks its pricing is, it matters what users think and whether they’ll continue to use the service. If Postmates wants to succeed in the non-food delivery space, it might need to make a few changes.