On paper, it would appear that consumers favor free over fast. But their definition of "fast" extends to two-day delivery. And they don't want to pay a lot more for that either, according to the most recent holiday shopping survey from Deloitte.
According to the survey, free shipping was the single most important e-tailing option that consumers intended to take advantage of during the Christmas shopping season, with 72 percent citing that feature. And 87 percent said free was more important than fast.
Nevertheless, the study said, “shoppers expect free shipping to be fast and are not willing to pay much to expedite it.” On average, they would pay $2.40 for a standard-sized package in two-day service. What’s more, 60 percent believed they could order after December 17 and still get free shipping for deliveries by Christmas.
When it comes to servicing online orders, we’re well into the age of the spoiled consumer. Amazon.com Inc. and a handful of others taught buyers that they shouldn’t have to pay extra for shipping. (At least in the form of a charge that was broken out from the price of the item.)
In 2005, Amazon began walking that promise back in the form of its $79 per-year Prime membership, which qualified buyers for free two-day shipping in many cases. (Amazon later upped the annual fee to $99.) But the offering also came with access to video streaming and other perks. And Amazon was big enough to keep on absorbing the shipping costs that weren’t covered by Prime revenues.
Most consumers would opt for free shipping, even if that means slightly slower delivery. But that’s still a burden on small to medium-sized e-tailers, who lack Amazon’s penchant for losing huge amounts of money in order to build up market share over the long run. Many are forced to set a relatively high minimum purchase price in order for the buyer to qualify for free shipping.
Amine Khechfé, general manager and co-founder of internet postal services provider Endicia, was surprised at shoppers’ reluctance to pay more for expedited shipping, especially when it comes to heavier or more high-valued items. But there are some strategies that small and medium-sized businesses (SMBs) can adopt to mitigate the pain of subsidizing shipping costs, he says.
With retail margins shrinking, SMBs need to do a better job of analyzing each item, and calculating the true cost of shipping. Then, says Khechfé, they should seek to adopt more creative incentives to encourage larger online order sizes. Shipping costs only rise incrementally with the addition of items grouped into a single delivery, he points out.
Other large online sellers, such as Wal-Mart and Costco, have some form of membership fee to partially absorb fulfillment costs and create an additional source of revenue. But that option might not be open to an SMB, says Khechfé.
Google Shopping can help to offset SMB shipping costs, providing an alternative to the Amazon model. Merchants pay to have their products listed on the service, but the fee could be lower than the full cost of freight, Khechfé says. In addition, the U.S. Postal Service offers a cost-efficient alternative to FedEx and UPS. SMBs can take advantage of three-day Priority Mail, at a price similar to four- to six-day ground options of private carriers or consolidators.
“It’s not going to be at the prices that large retailers get,” says Khechfé, “but it’s good enough that if you combine it with some smart positioning it becomes a good way to set [customer] expectations on your website. “You’re not getting the buyer to run away or be disappointed.”
The worst thing a smaller online merchant can do, he adds, is to negatively surprise the consumer. Shipping policies and options should be clearly stated up front, to avoid the dreaded prospect of shopping-cart abandonment, the total cost of which runs into the trillions.
It’s also crucial to know your inventory. A full understanding of what’s on hand in fulfillment centers allows the seller to apply optimal shipping policies to each item, based on value, demand and distance from the buyer. Smart sales campaigns can be implemented to encourage bulk buys that result in a bottom-line reduction in shipping costs.
As big and dominant as Amazon is, SMBs can still survive in the online marketplace, so long as they offer an attractive product with a clearly stated policy on shipping charges. The important thing is to be able to meet or exceed customer expectations, based on retailers’ promises. “They have the tools,” says Khechfé. “They have to compete across the whole supply chain.”
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