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While many e-tailers have scaled back on promotional offerings such as free shipping in recent months to cut costs, a study released Monday by Jupiter Media Metrix said that the return of paid shipping is driving away Web shoppers.
According to the survey, almost two-thirds of consumers have been deterred from completing online purchases because of shipping and handling charges. At the same time, the New York City-based research firm said 45 percent of online and catalog merchants reported losing money on shipping and handling.
Jupiter cautioned that companies looking to profit
from order fulfillment run the risk of
sparking customer 
distrust because
three-quarters of Web shoppers factor in shipping
costs before conducting an online transaction.
"As profitability becomes increasingly important, it is perfectly understandable that retailers would seek new sources of profit, including S&H charges," said Jupiter senior analyst Ken Cassar. "However, the long-term interest of the retailer is best served if its customers trust it."
Cassar added: "S&H is not perceived as a product -- but as a necessary evil."
Balancing Act
To minimize customer misgivings and merchant risk, Jupiter advised retailers to regard shipping and handling charges as a "breakeven proposition." Moreover, the study said e-tailers need to revamp the methods by which they calculate these charges.
Instead of basing costs on order size, merchants should determine charges according to the weight of the package and the distance it must be shipped. Currently, 54 percent of retailers base shipping costs on order size, while only 30 percent base costs on weight, according to Jupiter.
"Retailers that believe that they're simplifying matters for their customers by charging based upon the dollar size of the order or on the number of items in an order are making a mistake that may undermine the relationship that they're trying to build," said Cassar.
Weight Watching
According to those surveyed by Jupiter for the report, roughly 46 percent of consumers said shipping costs should be based on the weight or packages, while only 10 percent said order size should drive those charges.
"Consumers are wiser to the true costs of shipping than retailers think," said Cassar.
According to Cassar, shoppers who have mailed packages via United Parcel Service (UPS), the U.S. Postal Service or some other shipper, "are well aware of the fact that shipping costs are driven by weight, rather than by the value of the package."
Doing the Math
In fact, Jupiter said companies that charge on any basis other than weight "risk either losing money or robbing their customers."
For example, the report said that Pets.com was forced out of business in part because it subsidized the high costs of shipping pet food instead of passing those costs on to its customers.
On the other hand, Jupiter cited CDNow.com -- which charges US$2.99 dollars in shipping and handling for the first compact disc sold and 99 cents for every additional CD -- as a company that has used a "dangerous" per-item based pricing model. For example, a purchase of 200 copies of "Journey's Greatest Hits" (Jupiter's example) would cost a customer over $200 for shipping and handling, while CDNow would incur only about $28 in actual shipping costs.
To compile data for its report, Jupiter surveyed 2,271 online consumers and
measured the Web sites of 50 leading e-tailers.
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