Subscribe to receive industry news and valuable insights directly to your inbox.

Subscribe to Our Blog

What Retailers Should Charge for Shipping

by Mike DeFabis on 2016-12-07 09:57:29

Since the beginning of time, it would seem retailers have tried to figure out what consumers are looking are for.  This is often difficult because consumer expectations and demands are always changing.  It is no exception when it comes to ecommerce and shipping costs.  Consumer expectations have changed with the current expectation being faster shipping times at little to no costs. 

IDS Box on conveyor line 300x300 brightened.jpgAccording to Business Insider, approximately $4 trillion worth of merchandise is abandoned in shopping carts each year.  They cite that 58% of consumers abandon their carts because shipping costs made the purchase more costly than expected.

Of the 8 top reasons for shopping cart abandonment, 4 of them are related to shipping costs.

Know your Shipping Costs

In order to appropriately price shipping to your customers you need to understand what your shipping costs.  This requires understanding the weights, dimensions and locations of your customers.  You also need to understand how shipping companies calculate rates.  Typically, they are calculated by taking the posted rates minus applicable discounts plus surcharges.  Work closely with your carriers to understand these costs.  

A simple way to better understand your shipping costs is to look at historical data. Analyze the data to come up with the best estimated costs for shipping.  Consumers do not necessarily need exact shipping costs, but offering a rounded number such as $5.00 or $4.99 can be effective.  If you are using one of the major shopping carts such as Magento, Shopify, Netsuite, Volusion, etc. there are many plugins that can calculate exact shipping costs. 

Customer Expectations

Setting and meeting customer expectations is a key to customer satisfaction.  Making delivery expectations at 3-6 days for example and then not being able to meet those expectations leads to unsatisfied customers and non-repeat business.  Approximately 29% of consumers said they would not purchase from a retailer again because they did not meet delivery expectation.

This starts to get into the fine line of marketing and operations.  Marketing teams will often want to push to promote the fastest possible delivery times without taking into account operational capacity and the strain on the supply chain.   While transit times are reliant on carriers, you also must consider the time it takes for completion of the fulfillment process when setting consumer expectations.

Research and analyze what your competitors are doing with shipping options, costs and times.  Often times, it is your competitors who will set the consumer expectation especially if you are selling a highly competitive product.   There may be no choice but to offer specific transit times and shipping costs because your competitors are setting the bar.  Amazon is a prime example of a competitor dictating to the market when it comes to consumer expectations.

Offer Shipping Options

shipping label brightened 300x300.jpgAccording to comScore, 74% of consumers view number of available shipping options as a top reason for being satisfied with their shopping experience.  Just offering “free shipping” or “standard shipping” is not satisfactory.  The consumer wants choices.  By offering a variety of choices to the consumer retailers can actually save on shipping costs. 

For example, if you offer “free shipping” at a $6.00 cost to the retailer , but offer a second choice of “expedited shipping” at a cost of $9.00 to the retailer. If you charge the customer $5.00 for the expedited shipping, the total cost to the retailer is $4.00 for expedited shipping vs $6.00 for the free shipping option, saving the retailer $2.00 for a premium offering. There are many different varieties of shipping options out there from UPS, FedEx, USPS and mail consolidation companies.  You want to understand all the services these companies have to offer and give your customers choices at check out.  Some customers have no problem waiting 5-8 days for their product, but others want it now.

 Free Shipping

In the same survey conducted by ComScore, 74% of the consumers also say that free shipping plays into their feeling of being satisfied with their online shopping experiences.  In the same survey 58% of consumers want to see improvement in free and discounted shipping by retailers.  This means that consumers want free/discounted shipping, but retailers do not appear to be offering it in a way that satisfies the customer. 

There are many studies that say consumers want free shipping on orders over $50. Approximately, 60% of all online transactions exceed the $50 mark.  While $50 might seem like a good round number, it is not always feasible to offer free shipping at that mark for certain retailers.  Research also suggests that consumers do not always expect free shipping and it greatly depends on the their individual situation. 

Finding the equilibrium between consumer expectations and costs for shipping is a moving target.  To improve shopping cart abandonment and improve customer satisfaction, retailers must understand their shipping costs, give the customer shipping choices and find a way to offer free shipping. Understand that the customer wants to feel empowered and informed.  They want to know that the package will arrive within the stated time frame and they want confirmation through emails, texts and tracking information.

For more information on how IDS can help improve your shipping costs, Contact Us Today!


SmartWay AIB International
Proud Member of: