Pain Relief
PAIN RELIEF: Free shipping or not?
- 21st September
- Martin Newman 15
How do I determine the right pricing model for shipping? Is free shipping a must?
How do I determine the right pricing model for shipping? Is free shipping a must?
Newman: Free shipping is becoming commonplace. Amazon was the pioneer of this as a service proposition.
Retailers need to keep in mind what the drivers for consumers buying online are and convenience is a major driver. Price is also a driver. Therefore if a retailer charges for delivery they need to consider whether or not in their particular sector, the effect of this will be to push consumers to buy the product offline instead, or online through another retailer selling the same product but offering free delivery.
Most retailers tie free delivery to an average order value in an attempt to drive this up and cover the cost of offering free delivery through the additional margin generated. However, the default customer expectation is that in the main they expect free delivery.
Too many retailers still try to make a profit from delivery as a service.
But the reality is that unless you’re selling a product in a niche market with very limited distribution, then offering a free standard delivery service is a must.
However, the retailer can still charge for a premium delivery service whereby the customer receives their order on the same day or on the next day. Most online customers are quite prepared to pay extra to have their goods delivered the same or the next day if it’s more convenient for them to receive the goods then.
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I am really sick of retailers here charging through the roof for delivery – it is like retailers here think “delivery” is a luxury for shoppers, when in fact it is a necessity of online shopping. “You want it delivered? Sure, but that will cost you an extra $50. You have problems with the order? Sure you can return it, but you are responsible for all costs and even then, you are not guaranteed a refund and we will give you a hard time about it in the meantime.”
Truth be told, when I do any online shopping, I refuse to go via Australian retailers. And why wouldn’t I when I can get exactly what I want from overseas in pretty much the same time frame as it would take for delivery here in Australia, for NO extra cost (and if there are problems, the overseas retailers will generally pay for returns and no questions asked).
I couldn’t agree more with Cara. As a representitive for an online retailer we wish we could offer free shipping for all our products, but the fact is its just not possible.
The logistics solutions available in Australia for consumer delivery are far from mature and the infrastructure required to support those solutions is ageing at best. There are major national parcel carriers who have stated outright that they dont want anything to do with consumer delivery models. When compare to the US and European markets Australian retailers and consumers are at such a disadvantage.
The government is taking action to boost our internet capablities with the NBN but what good is enabling the shopfront if we cant get products to our consumers on time, on budget and intact.
Surely the revenue that goes off shore should be more then enough incentive to the local logistics players to step up their game. The demand exists …. but where is the supply.
It is a major dilemma Michael and a major barrier. Last week Bernie Brookes from Myer was quoted as saying that the high freight costs have been the major barrier to the retailer’s ecommerce rollout.
You can read a lot more about the issues facing the Australian market (and some great solutions) in our just-released Special Report: E-Commerce Fulfilment (download it here), and also keep an eye on our Hot Topic on Free Shipping here
I nearly always respond to the “spend over $x and get free shipping” offer if I’m in a hurry but usually I get it sent via the slowest method possible if it’s a birthday or Christmas gift (yes, I am one of those people who shops for gifts all year long, not when it’s due) to save myself a considerable fortune.
I also prefer avoiding all the hassle and shopping at sites which do not charge shipping but build the price within the cost of the item.
We charge a flat rate shipping fee. It is an honest approximation of our costs of shipping (at the end of each year we work out our total shipping costs, divide by total parcels shipped – easy).
The problem with offering free shipping is that we have to build shipping costs in to our item cost (obviously) making us more expensive in some customers eyes than our competitors.
Yes, I know us clever people in the industry look at “total basket price” every time but lots of customers still look at “headline product price” when making shopping decisions.
$19.99 for a packet of widgets plus $5 shipping often beats $24.99 for a packet of widgets with free shipping in a customers mind. Indeed they don’t even look at the second store, ’cause they see 19.99 vs 24.99 .
This is neither right or wrong, nor are customers smart or stupid for thinking one way or the other. it’s just the way it is.
Maybe the Australian retailers could implement an Amazon model where the customer pays a flat annual fee and can have as many orders delivered as they want in that period? Obviously they’d need to set the threshold a little higher but this could work and encourage repeat purchases and extend customer lifetime value.
Either way, it seems to me that retailers will have to take a hit on margin in order to offer a more compelling delivery cost proposition otherwise they’ll continue to drive sales to UK and US retailers such as ASOS.com.
Clearly this is a significant issue in relation to infrastructure.
But it also presents a pretty good opportunity for a logistics or courier company to break the mould and take some ownership of the delivery space.
Early mover advantage with the right pricing model and they could own the space.
I include free shipping worldwide within my prices. It’s very annoying as a customer to “think” you’ll be paying one price, only to be hit with shipping at the end. Build it in. There are some websites which charge for shipping AND credit card fees which is just outrageous.