Determining your shipping strategy for your web store can be difficult, to say the least. Your objectives to not lose money on shipping, to be fair to your customer, to easily administrate your web store, and to provide a shipping strategy that is easy to understand for you and your customers make this a hard job for anyone. Today, we will look at how online companies are dealing with this shipping dilemma, and what research has to say about the best practices for shipping.
Common Shipping Pricing Strategies
Three of the most common methods for assessing shipping charges are (1) by order size, (2) by order amount, and (3) by order weight.
- By Order Size
Pricing your shipping by order size has the advantage of being simple for you to set up and simple for your customer to understand. However, you run the risk of either overcharging your customer or losing money on your shipping.
For example, if you set your shipping rates at $5.00 per shipment and an additional $1.49 per item, you may lose money if you are shipping physically heavy items that your shipping vendor charges you more to ship. However, someone that purchases a small item from you, may be overcharged because it only actually cost you $3.49 to ship it.
Back in 2003, when we did some preliminary research on eCommerce shipping, Amazon.com was charging shipping by order size with a price of $3.00 per shipment and $0.99 per item for books to be shipped domestically. Today Amazon’s shipping rates are still structured similarly with a per shipment and per item fee – although now they also offer free shipping on orders over $25 and Amazon Prime – which offers free shipping for a yearly fee.
- By Order Amount
Pricing your shipping by order amount again has the advantage of being simple for you to setup and easy for your customer to understand. Again you run the risk of overcharging your customer or losing money for your shipping.
In this case, you are presuming that orders that cost a certain amount will have a similar shipping rate. For example, you might charge $6.00 to ship all orders totaling $0 - $19.99, $12.00 to ship all orders totaling $20.00 - $49.99 and, and $18.00 to ship all orders totaling $49.99 - $99.99. However, if you have a physically small item that costs $84.99, you will likely be overcharging for the shipping. And vice-versa, if you have a physically large item that only costs $19.99, you may be losing money on the shipping.
Williams-Sonoma.com bases their shipping price on the total amount of the order. They display a chart of their shipping fees corresponding to different order amounts on their site. It is interesting to note that they also offer free shipping for a year for a yearly fee of $30.
- By Order Weight
Since shipping services (USPS, UPS, FedEx) charge you for shipping a product by weight, it can make sense to charge your customers based on those weight-based prices. This has the advantage of being fair to your customer, and it eliminates the risk of you losing money on your shipping. However, the disadvantage is that this is more difficult for you to administrate for your store. You will need to know (or measure) the weight of each of your products, and figure in any products that might have additional charges due to their nonstandard size.
Research shows that customers actually prefer to be assessed shipping charges according to the product's weight. Weight-based shipping is seen as more truthful and less likely to be inflated.
Sears.com currently prices their shipping according to weight. Sears also runs promotions that offer free shipping to customers with a discount code.
What We Can Learn From Consumers
Because this is a difficult issue for all online merchants, there is some good research available that we can learn from.
- Be clear and upfront about your shipping pricing.
It is important to develop trust with your customer. Consumers are aware of the actual cost of shipping items and they will take their business elsewhere to make their purchase if they feel that you are overcharging for shipping.
- Consider using shipping discounts or promotions.
A recent comScore report showed that 41% of all online retail transactions involved free shipping. However, proceed with caution before offering free shipping to your customers. Research has shown that the prevalence of free shipping offers in the past has caused consumers to expect them and that retailers are having difficulty offering this and making profits.
If you consider offering free shipping, you can create a minimum order threshold (Orders over $XX amount receive free shipping.) and make this minimum order threshold at a point that will keep you from losing money.
It is also a good idea to provide a constant reminder that if the customer purchases a few more items, they will receive free shipping. This can be a great incentive. At Drugstore.com they currently offer free shipping on orders over $25. In the shopping cart (on every page of the site) they have a message that "You are $XX.00 away from Free Standard Shipping!" It is interesting to note that back in 2003, we found in research we were doing at that time that Drugstore.com offered free shipping on orders over $49. Customers desire for free shipping had increased over time and retailers have responded.
Typically free shipping offers are limited to a specific level of service – like UPS Ground.
If you don't want to offer free shipping, consider offering a shipping promotion that offers a certain dollar amount off of their shipping price (i.e. $5.00 off shipping on orders of $50 or more).
In the end, there are no easy answers for how to setup your shipping price structure on your site. You will need to evaluate your product offerings, your business, and your consumers to determine the right method for you.
Feel free to contact me at lori@brillianceweb.comm or 414-425-4069 with any questions or ideas about how this can be put to use for your business.
