Many e-tailers have lost sight of the forest for the trees. In some cases, they invest several million dollars into development and technology, but forget to employ the basics of sound retailing.
Whether the purchase is offline or online, consumers take all costs into consideration when making a buying decision. What really counts is the final bill — whether they are paying the check in a restaurant, purchasing an automobile or buying a gold pendant online.
Let’s say a shopper finds a product online that he or she knows is priced competitively. Once that person goes to checkout and enters his or her “Ship To” and “Bill To” information, the entire transaction can easily be scuttled by one very significant psychological barrier.
Shipping is $27.90 (US$)? Forget it. And so goes the shopping cart.
Where’s the Sense?
The bottom line here is that e-tailers cannot sell to online shoppers if their shipping model does not make sense.
In the above example, a “catalog shipping model” was deployed — where the shopper’s shipping and handling fees are tied as a percentage of the price of the product being purchased.
Such a shipping model simply does not make sense. Why should the shopper be penalized with high shipping costs for spending more money at the online store?
It should be the reverse. The shopper should be rewarded for spending more during their shopping session. If the shipping model is not rational, online merchants risk the chance of losing their customers to another online store or brick-and-mortar competitor.
Never mind the cost of gas and the time they save. Online shoppers are becoming more intelligent every time they make a purchase. If the e-tailer has enough volume to negotiate a flat-rate fee for each item shipped, it can be a powerful marketing tool. However, most are not in this category.
Is Free Shipping the Answer?
Since e-tailers have problems employing a practical shipping model that satisfies online shoppers, many have decided to offer it free as an incentive. Free shipping can be the difference in acquiring a new customer or ultimately making a sale.
However somebody needs to pay the shipping bill — either the shopper or the e-tailer. In addition, a study conducted over the last holiday shopping season by Forrester Research concluded that e-tailers that promote free shipping could face problems if they ever change their policy — because shoppers take shipping seriously.
As attractive as it might seem initially, shipping for free is ultimately a lose-lose situation. It either inflates the cost of customer acquisition or is translated to the customer through the ticket price on each item.
Problems Continue to Intensify
One might have thought that online merchants learned their lesson after the first wildly successful holiday online shopping season in 1998. However, back-end problems involving fulfillment and shipping continue to this day.
After two years of online shopping with varied results, shoppers are far more savvy about doing business online. They will not get fooled again by surprise shipping costs.
According to another recent Forrester study, 60 percent of online merchants lose money on each shipment, while at the same time, 75 percent of online merchants cannot calculate the total delivery cost of a given shipment until after they get the bill. What is the mystery?
A Better Way
E-tailers can reduce abandoned carts, increase revenues and enhance the customer experience by properly handling three information elements: The fulfillment zip code, the shopper’s zip code, and the properties (weight, dim weight) of the SKU.
With the right software package — and there are over 50 listed on Yahoo! — or third party service, this information can be used to calculate multiple shipping alternatives, such as UPS ground or next-day air by Federal Express. Shoppers can then be given the various options during the checkout process.
By adopting this shipping model, online merchants can avoid the lose-lose of free shipping without pushing customers away with inaccurate shipping estimates. From all indications, customers will appreciate the honest treatment.