July 11, 2001
Handling Shipping Costs
Shipping costs can drive online shoppers away and cause e-tailers to lose money
Shipping and handling charges are a tough issue for many online retailers. If they offer free shipping, they'll lose money. If they charge too much for shipping, they'll lose customers.
According to Jupiter Media Metrix, a market research company, 73% of consumers evaluate the total price of an order, including shipping and handling charges, before making a purchase. In addition, shipping and handling charges dissuaded 63% of consumers from completing online purchases. This isn't good news for online retailers. To make matters worse, Jupiter reports 45% of retailers say they are losing money on shipping and handling.
There is a way to charge customers for shipping and still keep them loyal without losing money. Business analysts and Jupiter researchers say the secret is simple: build trust with customers by viewing shipping and handling as a break-even proposition. It seems too easy if you charge customers the right amount, they'll feel more comfortable shopping at your store. All, or at least most, online retailers do that, right? Not necessarily.
Jupiter found 54% of online retailers base their shipping costs on the size of the order rather than the weight of the order. Since shipping companies charge based on the weight, these retailers risk losing money or ripping off their customers. Customers aren't as naive about shipping charges as retailers think. Most people have shipped packages before, so they know when a retailer overcharges them.
Shipping and handling costs aren't going away. While offering free shipping has proven to increase sales 30%-40%, it's not realistic to do this all the time. A compromise must be made. It may be more complicated to charge customers based on the weight of each order, but it may save you money and keep your customers loyal. If you do charge based on order size or cost, be careful not to overcharge your customers. They'll know.
- by Julia M. Duncan