Compete Blog: Can Shipping Costs Affect Online Sales?

Discussion
Jan 28, 2010
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By Debra Miller

Through
a special arrangement, presented here for discussion is an excerpt of a current
article from the Compete Blog. Compete Inc. is a web analytics company
that focuses on understanding how consumers use the internet.

If this past
holiday’s trend is any indication, consumers love free shipping. But to what
extent do shipping costs actually factor into a consumer’s decision to purchase
online? A fair amount, according to the most recent Compete Online Shopper
survey.

A main finding of the study is that shipping
costs not only weigh heavily on consumers’ decisions to purchase products
online, but it also impacts consumer satisfaction. E-commerce is all about
convenience and price; additional shipping costs contradict both of these
features. For small purchases, an extra $5 shipping charge could amount to
a 20 percent to 50 percent premium, which is bound to leave a sour taste in
any consumer’s mouth. But while charging for shipping is seen as a negative,
there is an upside to this standard practice — free shipping can win you big
points with consumers.

Below are a few highlights from the study:

  • Ninety-three percent of respondents indicated that free shipping
    on orders would encourage them to purchase more products online.
  • Two out of three shoppers said they would buy more online if returns
    were free.
  • When asked about their most recent shopping experience, overall customer
    satisfaction was 10 percentage points lower for those who paid for shipping
    compared to those who had free shipping.
  • High shipping costs were rated as the number one reason why consumers
    were not satisfied with their online shopping experience.
  • Sixty-seven percent of online researchers stated that they purchase
    items in a store instead of online in order to avoid shipping costs.
  • Sixty-five percent of respondents indicated that they choose the
    ‘in store pick up’ option, when available, for the same reason.

Discussion
Questions: Have
free shipping deals become almost a prerequisite for e-commerce? What’s
the best way retailers can alleviate consumers’ concerns around these
expenses?

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17 Comments on "Compete Blog: Can Shipping Costs Affect Online Sales?"


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Max Goldberg
Guest
11 years 3 months ago

Free shipping does drive sales but it is not a prerequisite for online purchases. Not all merchants can offer free shipping. For those, fixed-cost shipping may be the answer, or free shipping with a minimum order size. By stating a flat rate for shipping or a minimum order size on the home page, consumers know upfront what costs will be added to their offer. The worst ecommerce websites are those that make consumers search for shipping cost and sales tax policies. That used to be the norm, but it no longer satisfies consumer expectations.

We encourage our clients to either offer free shipping (with or without a minimum order) or clearly stated flat rate shipping.

Ian Percy
Guest
11 years 3 months ago

I decided a while back to highlight “Free Shipping” on our Infinite Possibilities Jewelry line and it seems to have paid off nicely. But jewelry is light and easy to ship inexpensively. When it comes to shipping books, I can’t make it work because there just isn’t enough margin. Free $5 worth of shipping takes a whack out of the profits. That said ‘free shipping’ is a huge incentive to buy.

Susan Rider
Guest
Susan Rider
11 years 3 months ago

Free shipping will be much more important if the sales tax is enforced. Definitely, free shipping for volumes would be expected.

The issue with most online retailers is twofold. First, they are using shipping cost for a revenue stream. Don’t think consumers don’t get that; they are agitated with the “game.” When a package is received and they paid $8 for shipping but the package says $2.50, it’s perceived as a negative and a shell game by the consumer.

The other critical and best way to reduce cost is an analysis of the shipping department. Mistakes by most distribution centers include not consolidating orders, not making wise shipping container decisions, using too much or too little dunnage, not making their pack stations lean and green. For instance, there’s nothing more frustrating to a consumer than to get a small bottle in a box 12x12x6.

An audit of the retailer’s shipping department will assist in reducing their cost and ultimately saving the consumer and the facility many thousands of shipping dollars.

J. Peter Deeb
Guest
11 years 3 months ago

Shipping and return costs are paramount in consumers minds as they shop online. Offering free shipping with minimum dollar orders is a good, long-term strategy to keep customers and build order size. Free shipping with a first order should also be in the mix as this is a great way to stimulate new business.

The more commodity-like your product, the more differentiation you need and free shipping or shipping discounts can be a competitive edge.

Ryan Mathews
Guest
11 years 3 months ago

Ian’s right–it all depends on the product. Is it a huge incentive for all buyers? No question. Does it make sense for all sellers? No way.

Ben Ball
Guest
11 years 3 months ago
I placed an online order with one of my favorite multi-channel retailers just last night. I added a couple of “nice to have” items to the order to get over a “$20 off $150 or more” hurdle, then chose the “free in-store pickup” option to avoid shipping charges. I probably wouldn’t have done this if the store weren’t also one of my favorite places to spend a Saturday afternoon, but I will look for any means to avoid shipping charges. Psychologically, not paying shipping means I am escaping the penalty I normally pay to have the convenience of shopping from my desk and avoiding stores. No shipping charge means “I win!” As the authors point out, the “shipping barrier” hurdle goes up as the price of the item ordered goes down. That is what makes online so tough for CPGs. But retailers might consider using shipping as a rewards program. For example, all shipping is free–regardless of order size–after you order $250 from us in a year. Or how about, get a rebate of all… Read more »
David Biernbaum
Guest
11 years 3 months ago

Shipping costs definitely have an affect for online sales, especially for when consumers are purchasing items for under $20.00.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 3 months ago

Free shipping is not a prerequisite for successful e-commerce, but it sure helps. A customer will pay reasonable shipping on things they’re intent on buying, but free shipping goes a long way toward building a positive customer experience, and converting a casual customer into a loyal customer.

Dan Gilmore
Guest
Dan Gilmore
11 years 3 months ago

Just two quick points.

A number if not most of the “consolidator” web sites now calculate shipping charges to show price comparisons across web vendors. So, it doesn’t matter so much if it’s free for these types of items (non-proprietary to a single e-seller) as what is the net item price + shipping cost, as that in the end is the total consumer price. And we know where online shoppers will go.

Second, some savvy e-tailers change both the thresholds for “free shipping” and other shipping cost brackets based on seasonality, the current state of business, promotions, etc. In other words, the shipping charges and various breakpoints are dynamic. I have talked to drugstore.com, for example, and they use this approach very effectively.

Gene Detroyer
Guest
11 years 3 months ago

Shopping logic is sometimes a conundrum. A shopper will go online and find the item they want at $20 less than they can buy it for in a store. But then they see the shipping cost is $10, and refuse to buy it.

Our shopper than gets in the car, drives 10 miles to the mall, parks, finds the store, buys the item, pays sales tax and returns home 2 hours later.

Perhaps, the above example is an exaggeration. But, it is not far from the truth. While some online retailers have ridiculous ways of calculating shipping, most online shipping costs are savings versus the expense in time, gas, sales tax and convenience from actually going to the store.

As online shopping grows, consumers will not only adapt and accept shipping charges, but also will be able to tell what ones are reasonable and what ones are rip-offs. Advice to the retailers…keep shipping costs simple and logical. Don’t use shipping charges as a profit center.

Ed Hertenstein
Guest
Ed Hertenstein
11 years 3 months ago

As a consumer, the shipping costs certainly impact my decision to purchase online. Over the weekend, I was shopping and wanted to purchase a $200 chair at a retailer. They were out of it in the store, but said I could purchase online. They wanted $50 to ship it. No thanks, I will wait until it is in the store or not buy it.

When free shipping is offered I may buy something sooner than I otherwise would have. Or it may at least get me to shop their site.

Richard Wakeham
Guest
Richard Wakeham
11 years 3 months ago

I pay an annual fee ($79 I think) to one of the major companies where I buy as much as possible. With that I get free two day delivery with no minimum on most items I order. I still always research the product and model numbers to make sure I am ordering the correct item. With stocking levels decreasing at some retail locations it also saves me time not having to run around trying to find the item.

Bernice Hurst
Guest
11 years 3 months ago

Max is absolutely right about having the information front and center. And that having a minimum order charge in order to qualify for free shipping encourages a bigger spend as well as warmer feelings. As I most frequently send things I’ve ordered online to Alaska, this has been a major headache over the past few years. It costs a fortune and many suppliers refuse even to send things including innocuous items such as games (I understood the difficulty of sending a cheesecake)–I have no idea why this presents such problems for retailers. If the shipping charges are reasonable, I don’t really mind but they are sometimes exorbitant and I mind that a lot. Here ends today’s grumble.

Arthur Rosenberg
Guest
Arthur Rosenberg
11 years 3 months ago

Shipping costs should be factored into the retail price. Having a separate shipping charge is akin to a retail store adding a cashier fee at the time of the checkout.

Traditionally all costs are included in a retail price. While channel surfing, I occasionally stop at a shopping channel when I see an interesting or odd product. I don’t buy as these channels rarely offer true values and neglect to mention features a product is lacking. When they boast of a competitive price on a product under $25, the $5.99-$6.99 shipping charge often adds 25-30% to the original price. The so-called bargain is lost.

The cost and nuisance of returning a wrong or poorly sized item only adds to the consumers’ loss of money and time.

Mark Burr
Guest
11 years 3 months ago

Nothing is free. But if they tell you it is, it makes you feel better. If they execute well, it feels even better. Anyone who thinks they got free shipping even when they told you that you did, well, I’ve got some (you fill in the blank) to sell you. I still like feeling good. So just like the majority of consumers, label me a ‘sucker’ for free shipping.

Tim Henderson
Guest
Tim Henderson
11 years 3 months ago

Free shipping isn’t prerequisite. For example, the nice thing about e-commerce is it allows consumers access to more products than are available in-store and access to more retail brands than are available in their geographic area. In either case, consumers who really want a product that’s only available via e-retail are likely to pony up the shipping costs. The problem, of course, is that it may be a one-time-only purchase.

That said, free shipping can definitely ease consumers into clicking “buy.” And it doesn’t have to always be a free shipping or no free shipping scenario. The key takeaway from this study (given the quant results shouldn’t surprise anyone) is that free shipping is very valuable. And given its value to consumers, merchants should be very wise in how it’s used. For example, offering free shipping only to the brand’s best customers, or using it only after the shopping basket has reached a certain amount. By using it in a more strategic manner, retailers could reward the best and incite the rest to shop more often.

Phil Rubin
Guest
11 years 3 months ago

Free shipping isn’t the silver bullet for e-commerce but shipping value certainly is a prime factor. There are inherent trade-offs in online versus brick/mortar and delivery is obviously a centerpiece.

One of the best examples, both to underscore creating value around shipping and to illustrate a best practice, is Amazon Prime. Undoubtedly there is a lot of breakage with this (i.e., customers paying more than they would otherwise) but at the same time, Amazon realizes that making shipping a non-issue drives sales and creates habit of shopping at Amazon.com.

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