Shipping Shock: Why Ready-to-Buy Customers Bail

More than 50 percent of e-commerce shoppers cited shipping as a reason for abandoning their shopping carts online, according to research conducted by Royal Mail, the UK equivalent of the U.S. Postal Service.

Furthermore, 43 percent of consumers’ retailer choices were influenced by their delivery experiences and options, the Interactive Media in Retail Group found.

When you consider how much it costs to acquire a new customer on an e-commerce site, it becomes apparent that attempting to make a small extra profit by adding some extra margin on top of delivery costs or not supplying all of the possible delivery options at checkout can be futile.

Mistakes like these mean that e-tailers are not just missing out on the delivery margin, but rather on the entire basket’s value and, worse still, the entire potential LTV (life time value) of the consumer. It is therefore important that e-commerce firms take into account the psychology of the consumer when it comes to shipping.

The key factors that influence the buying decision when it comes to delivery options online are price of delivery, speed of delivery, delivery options and carrier choice. The transparency and clarity of these key factors early on in the e-commerce transaction are also major contributing factors.

Free Delivery

Free delivery is becoming a cornerstone for a growing number of e-commerce websites. Free delivery can easily be used as a promotional tool for online companies — one that not only draws in new customers but also encourages repeat usage from established customers.

This could not be more clear than it is on Play.com, which has ingrained free delivery not just as a nicety but as part of its business model. This is proved by its tag line across the site, “FREE DELIVERY ON EVERYTHING.” Its delivery policy is outlined immediately for any potential customer and highlights its USP.

Although consumers are certainly enticed by the prospect of free delivery, they are also savvy about purchase prices. If the price of the product incorporates the shipping costs and inflates the price above the same or similar products elsewhere, the consumer will likely be put off at an early stage. With price comparison websites, it is even easier for the discerning buyer to ignore a marked up product.

Free shipping on low-value items can increase revenue while simultaneously eating away at company profits. It is for the company to decide whether factoring in free shipping into the overall budget will ultimately yield a positive return on investment.

Importance of Transparency

Commonly the registration/login page is the point in the user journey where many e-commerce transactions fail if the terms around delivery have not yet been clearly stated. Vistaprint, for example, is a very large and successful company, but it relies on a risky strategy when it comes to shipping costs — hold them back until the very last moment.

Once the customer gets to checkout, delivery prices are finally displayed, ranging from Pounds 18 to Pounds 3.08 (if a customer is prepared to wait 21 days). While some consumers will be indifferent to shipping costs, the unannounced nature of last-minute additional fees will often scare off others. Therefore, in the case of Vistaprint, the chance of re-use and customer retention is likely to be low due to the lack of transparency throughout the whole process. While this will certainly affect the dropout rate, it is a strategy that has successfully worked for the company for many years.

On the other hand, Amazon maintains highly transparent shipping costs, whether charged by itself or by sellers who operate on the site. On product pages, alongside the product price, it clearly displays the various delivery options. Product pages on Play.com also carry great transparency and clarity in regard to delivery — not only mentioning that it is free, but also providing an approximate time frame. Play’s take on delivery essentially removes any chance for discrepancies or confusion on the part of the user.

Many e-commerce sites that offer free shipping will state certain provisos, such as a minimum spend of US$25 or shipping to an American address. It is in Amazon’s best interest to clearly outline these requirements to any potential consumers before they reach the checkout stage.

One of the most interesting delivery promotions run by Amazon is Amazon Prime, which is experiencing huge success. For a yearly fee of around $79, consumers enjoy an “all you can eat” shipping service of free two-day deliveries on all items purchased.

During the 2008 holiday season, Amazon Prime enrollment was as high as 4.8 percent of purchasers, according to Compete.com. This tells us that consumers clearly value speedy, reliable and up-front delivery options.

From an e-tailer’s point of view, the lock-in effect of having a consumer pay a subscription for preferred delivery options is substantial. A returning customer, in this case, is worth more than the revenue from an increased shipping cost. Although consumers can be discouraged by shipping costs, the psychological effect of displaying them at every stage of the buying process enforces an e-tailer’s trustworthiness.

Context of Shipping Costs

The effect shipping costs will have on a potential consumer is undoubtedly dependant on the item(s) that need to be moved. For example, a customer may be outraged by the thought of paying Pounds 6 shipping for a DVD — but would be ecstatic if the same cost were applied to a newly bought washing machine.

Within this paradigm, the majority of e-commerce sites do not have universally static shipping costs across varying products but rather base them on item prices or dimensions. Similarly, there are scenarios in which the consumer is willing or even expecting to pay a seemingly higher shipping cost. A consumer who is buying a fragile item, is shipping internationally or has a niche shipping requirement such as a chilled delivery vehicle, will expect a costlier delivery charge.

Consumers have also come to expect a slower shipping service if delivery is free of charge. Conversely, the quality and speed of shipping should be reflected if the consumer pays a premium for delivery.

Robert Matthams is managing director of the online transport marketplace Shiply. He was named Shell Young Entrepreneur of the Year in 2009.

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