Assuming you shop online, what is your perception of ecommerce shipping? Are you among the 75% of consumers who expect free shipping? Are you likely to back out of a purchase if you don’t like the shipping options? These are all things ecommerce operators have to consider. Unfortunately, ecommerce shipping has a perception problem that can make life difficult for retailers.
What is that problem? That consumers can actually pay little or no shipping charges when they buy online. The retail industry has helped perpetuate the myth by offering free shipping on orders over a certain amount. Unfortunately for consumers, there is no such thing as free shipping. Only the perception of free.
A Cost of Doing Business
Businesses do what they do to make money. They are not in it to lose. Furthermore, nearly every business operates on what is known as a ‘margin’. Margin is a percentage of total revenues that constitute profit. Imagine you are selling a product for $100. If your total costs amount to $75, your profit on each sale is $25. Simple math reveals that your margin is 25%.
Here’s the deal on free shipping: it is considered a cost of doing business. Any company worth its salt isn’t going to compromise its margin in order to offer free shipping. So what happens? Companies simply mark up their prices to cover free shipping. Costumers ultimately pay for shipping even though they think they are getting it for free.
Free shipping tends to be good for retailers in the sense that it helps them make sales. People want free shipping, so retailers are happy to provide it. But it is a balancing act. Retailers can lose sales if they increase costs too much. So what’s a retailer to do? Keep shipping costs to a minimum by not marking them up when calculating retail price.
Charging for Shipping
The alternative to free shipping is charging shipping on each sale. If a retailer can do that and keep its prices competitively low, doing so could end up being advantageous. But wait. Charging for shipping requires choosing from between two models: flat-rate and per-package shipping.
Flat-rate shipping keeps things simple for the customer but makes things more difficult for the retailer. The retailer must do their best to break even, knowing that some shipments will make money and others will lose. It is another balancing act. On the other hand, charging per package is laborious, time consuming, and unattractive to customers.
Preferred Shipping, an authorized DHL Express reseller based in Sugar Land, TX, says e-commerce operators may be better off with either flat-rate or per-package shipping for cross border transactions. There are too many things to account for to offer free shipping straight up.
Getting Something of Value
All of this goes back to the perception idea. In short, the retailer’s goal is to make customers believe they are getting something of value. In most cases, customers see value in free shipping. It makes them feel good. It makes them feel like they are getting something for nothing. It doesn’t matter that, if you sat down and explained the realities to them, they would understand that free shipping really isn’t free.
Likewise, it is possible to give customers a sense of value by keeping retail prices lower and charging a flat rate for shipping. It’s just that you’ll have a harder time explaining that in a clear and concise way.
Ecommerce shipping has a perception problem because consumers mistakenly believe that the companies they buy from are more than happy to eat shipping costs. They are not. Consumers pay for shipping one way or another.