While many e-tailers have scaled back on promotional offerings such as free shipping in recentmonths to cut costs, a study released Monday by Jupiter Media Metrix said that the return of paid shipping is driving away Web shoppers.
According to the survey, almost two-thirds of consumers have been deterredfrom completing online purchases because of shipping and handlingcharges. At the same time, the New York City-based research firm said 45percent of online and catalog merchants reported losing money on shipping and handling.
Jupiter cautioned that companies looking to profit from order fulfillment run the risk of sparking customer distrust becausethree-quarters of Web shoppers factor in shipping costs before conducting an online transaction.
“As profitability becomes increasingly important, it is perfectlyunderstandable that retailers would seek new sources of profit, includingS&H charges,” said Jupiter senior analyst Ken Cassar. “However, thelong-term interest of the retailer is best served if its customers trustit.”
Cassar added: “S&H is not perceived as a product — but as a necessary evil.”
Balancing Act
To minimize customer misgivings and merchant risk, Jupiteradvised retailers to regard shipping and handling charges as a “breakeven proposition.” Moreover, the study said e-tailers need to revamp the methodsby which they calculate these charges.
Instead of basing costs on order size, merchants should determine chargesaccording to the weight of the package and the distance it must be shipped.Currently, 54 percent of retailers base shipping costs on order size, whileonly 30 percent base costs on weight, according to Jupiter.
“Retailers that believe that they’re simplifying matters for their customersby charging based upon the dollar size of the order or on the number ofitems in an order are making a mistake that may undermine the relationshipthat they’re trying to build,” said Cassar.
Weight Watching
According to those surveyed by Jupiter for the report, roughly 46 percent ofconsumers said shipping costs should be based on the weight or packages,while only 10 percent said order size should drive those charges.
“Consumers are wiser to the true costs of shipping than retailers think,”said Cassar.
According to Cassar, shoppers who have mailed packages via United Parcel Service (UPS), the U.S. Postal Service or someother shipper, “are well aware of the fact that shipping costs are driven byweight, rather than by the value of the package.”
Doing the Math
In fact, Jupiter said companies that charge on any basis other than weight”risk either losing money or robbing their customers.”
For example, the report said that Pets.com was forced out of business in partbecause it subsidized the high costs of shipping pet food instead of passing those costs on to its customers.
On the other hand, Jupiter cited CDNow.com — which charges US$2.99 dollars inshipping and handling for the first compact disc sold and 99 cents for everyadditional CD — as a company that has used a “dangerous” per-item basedpricing model. For example, a purchase of 200 copies of”Journey’s Greatest Hits” (Jupiter’s example) would cost a customer over $200 for shipping and handling, while CDNow would incur only about $28 in actual shipping costs.
To compile data for its report, Jupiter surveyed 2,271 online consumers andmeasured the Web sites of 50 leading e-tailers.
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Finding the balance is key, of course. But that includes offering low-cost shipping options. Just because Internet shopping can be a fast experience, doesn’t mean it must be. If I order office supplies, I want to have the option of shipping it by a low-cost method, even if it takes two weeks. If I need a replacement computer peripheral overnight, then I want that option, too. Give me clearly defined options; don’t default to next-day or 2nd-day delivery. Be reasonable: columbiahouse.com, following their mail order heritage, applies astronomical ‘shipping and handling’ charges (I’ll never shop there again).
I, too, wonder why more localized shipping doesn’t occur. My nearest Borders Books and Music store is 50 miles away, with US Mail between here and there usually a one-day affair. Why not ship my order from there? Their local in-store newsletter as stuffing would be a great tie-in. Because it makes sense (to me), I would be drawn back to their web site more often.
The smart e-tailer utilizes a warehouse management system that can accurately calculate the weight and number of pieces for a proposed web transaction. Once the total number of items is complete, the system will then determine the shipping costs, including packaging weight and any additional fees such as insurance, and feed this back to the consumer for finalization of the the transaction.
It is perfectly true. When medium level e-stores like exoticindiaart.com are shipping free to the US (all the way from India), why cannot larger stores based in the USA do it?
The subject thrust here is ..”..costs drive away E-shoppers”. This may be true to some degree,
but S&H costs have been around for years – witness catalog sales. The number one reason people buy anything on-line is for the convenience. If it were a ‘cost’ issue everyone would buy at Wal-Mart. However, Wal-Mart is not the only success on the block.
One other comment found in USA today quotes Jupiter Media Metrix as saying that on-line retailing in the next five years will increase astronomically. Is S&H driving away that volume?
When I make a purchase on line or mail order, I expect to pay the same shipping charges that the retailer pays their transportation company. Handling charges should be part of the cost of doing business. What does “Handling Charge” mean? Does it include the cost of taking my order? Does it include the cost of processing my order? Does it include billing me and crediting my account? Again, “Handling Charge” should be part of the price of the product and not be associated with the shipping cost
When I make a purchase online or mail order, I expect to pay the same shipping charges that the retailer pays their transportation company. Handling charges should be part of the cost of doing business. What does “Handling Charge” mean? Does it include the cost of taking my order? Does it include the cost of processing my order? Does it include billing me and crediting my account? Again, “Handling Charge” should be part of the price of the product and not be associated with the shipping cost
What baffles me is the lack of focus a lot of these e-commerce retailers have placed on their core business and have tried to run and finance every aspect of their business, including delivery.
As an example, here in Canada, Chapters.ca – an online retailer of books and such who have recently been sold to Indigo.ca. They cetralized their processing and distribution of orders and shipped all over the country at a tremendous cost to both themselves and their customers. Why wouldn’t they fill orders from their store locations (that struggle for traffic) and then ship from there locally?
As a shopper, I don’t expect e-tailers to charge nothing for shipping fees. I understand that when I order from home, there’s a convenience factor to pay for.
But I do often question why they would relate to the dollar value of an item and not the weight. Some places have policies that seemingly would charge more in shipping for a $100 gift certificate than a $10 block of cement.
If shipping and handling charges are based on weight of products, how does a retailer
account for additional weight resulting from packaging material?
Combination of different products will require different packaging requirements that cannot be
predicted on the front end.