Top Strategies for Free Shipping Part I

Research shows that if you don’t offer free shipping, you’re losing customer loyalty, revenue per sales, product margin, and customer loyalty. A Harris Poll found that shipping costs were the number one complaint of online shoppers. This is far more than 38 percent who complain about receiving merchandise that doesn’t look exactly like what they see online. 81% said that free shipping would increase their likelihood of shopping online over in-store.

A National Retail Federation survey found that 85 percent of online shoppers prefer standard shipping to any of the five most common promotions for shopping online. The best promotion was actually chosen by 166 percent of online shoppers, who chose “free shipping” over the others. Boston Consulting Group discovered that customers want free shipping more often than lower prices for the products they buy. Forrester Research found that cart abandonment is largely due to buyers’ perceptions of shipping costs being too high. Another study shows that 20% of online shoppers consider free shipping to be the most important reason they shop online. 19% say they will pay full price if they get free According to a 2014 comScore survey, 58 percent of shoppers will add items to their cart in order to be eligible for free shipping

Profits are impacted by shipping costs. However, online sellers who make a lot of money use multiple strategies to reduce shipping costs. Here are some ways you can do it too.

1. __S.15__ 85 percent of online shoppers will wait five days to place an order. If free shipping is available, 83 percent will accept 7-day delivery. FedEx SmartPost and UPS SurePost, UPS Mail Innovations and Newgistics as well as DHL Global Mail and OSM Worldwide, are the major postal consolidators offering two-seven days delivery to residences at significantly lower prices than Air and Ground.

2. Go postal. Shippers who add the US Postal Service to their carrier mix will be able to significantly reduce costs and improve customer service. The USPS has many advantages over private carriers. They go to every single door every day. Additional stops may be required by other carriers, particularly to residential addresses. Many USPS products have a competitive price, especially when compared to fully landed costs with special handling and surcharges with FedEx and UPS. There are four pricing options available: Retail, Commercial Base and Commercial Plus, as well as custom Negotiated Service Agreements (NSA). You also have flat, unlimited weight and regional rate options.

An analysis of pricing revealed that the USPS is very competitive for residential packages with lightweights, especially in close-in areas. It is a good choice for shipments offshore to AK/HI and US Territories. It provides free packaging and pickups. Saturday delivery is also available. It is the only carrier to offer First Class pricing for parcels under one pound. Delivery service standards are within 1-3 business day.

3. Ship-to-Store. Consolidating packages to one location is much cheaper than shipping multiple lightweight packages to different residences. Here’s how ship to store strategies work: A customer places an order on the retailer’s website. The retail location receives notification of the order and fills it with in-store stock. If an item is not available in the local store it can be shipped from a distributor center, another shop, or even a vendor. The customer can pick up the item at their convenience.

It’s also a great way to increase your order value. According to Shop-a-Tron merchants a majority of pickup orders made in-store resulted in additional sales. Forbes reports that in-store pickup is a popular way to combine the offline and online shopping experience. As a way of increasing sales and increasing online conversions, more and more retailers are offering in-store pickup. In-store pickup is offered by 70% of the top 10 retailers. Only about 25% of the remaining 30% offer the same service.

4. Include shipping costs in the product cost. The BCG study found that shoppers prefer free shipping over lower prices for the products they buy. For certain items, you can simply add shipping costs to the product cost. Let’s assume that the product price target at desired margins of $90 is $90. It can be sold at $95 with free shipping. Zappos is able to achieve close to 100% margins in a highly competitive and often low margin shoe industry by offering free shipping and returns.

5. Limit your products. Do not advertise free shipping or promote free shipping. However, limit free shipping to the most economically viable products. You should not offer free shipping for items that will incur extra costs such as high assembly or dimensional charges. Offer free shipping on high-margin products only if you can afford the extra shipping cost. Baird Equity Research estimates that only 10% of Amazon’s physical products are eligible for Prime.

Are you still not sure if free shipping is possible? For more ways to offer free shipping, see part 2 in the December issue.


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