Postmates axes delivery fees for subscribers as it battles Amazon and Uber in the on-demand delivery war
Postmates has a new plan to grow its delivery business in the face of fierce competition from Amazon and Uber: Getting rid of those pesky fees.
The on-demand delivery app said Thursday that it's removing all delivery fees for members of its Postmates Unlimited subscription, which costs $9.99 per month.
For non-subscribers, deliveries from in-network merchants that partner with Postmates will cost a flat delivery fee of $3.99 with no additional fees. Postmates will charge a flat $5.99 delivery fee and a variable service fee capped at $20 for out-of-network merchants that don't already pay the company a commission on sales.
The move to simplify its pricing and grow its subscriber base comes after six-year-old Postmates struggled to raise $141 million in Series D venture capital funding last October, valuing its business at roughly $600 million.
In an interview with Business Insider, Postmates senior vice president of finance and strategy Kristin Schaefer said the pricing changes were also in response to mounting competition in the on-demand delivery space. Deep-pocketed rivals like Amazon and Uber are ramping up their delivery offerings along with upstarts like DoorDash.
By removing all delivery fees for Postmates Unlimited subscribers, Schaefer said the company expects 25% of its customers to be subscribers by the end of the year, up from 10% now. Subscribers will have access to free deliveries from the app's full list of over 250,000 merchants, including restaurants, drug stores, and even liquor stores in select cities.
"It's a loyalty play," she said, noting that subscribers purchase 50% more per month than non-subscribers.
That frequency makes up for the higher margins Postmates would otherwise make off pricier delivery fees from out-of-network merchants that don't pay the company commissions to help process transactions and regularly update inventory in the app.
Postmates expects the simplified pricing to also ease frustrations over confusing delivery estimates, Schaefer said. That confusion has led some to accuse the company of intentionally misleading customers.
"From a competitive perspective, it was really key for us to offer the lowest and most transparent pricing," she said.