A recent article in Advertising Age questions whether free shipping from websites may be less common due to rising fuel costs. I believe free shipping with and without conditions will increase. Free shipping has more to do with getting around MSRP than actual shipping costs. For a retailer to cut out free shipping, theoretically the free shipping would have to account for 50% of an item's price thereby canceling out any profit for the retailer. (I'm assuming that the item in question is marked up 50%, as most retailers do.) Fuel surcharges may be up, but I foresee a 1/3 of online retailers continuing to offer free shipping without conditions and 70%+ to offer it with conditions. In these tough economic times, retailers will choose to cut further into their profit as long as it doesn't completely nix any profit. Why? Most online purchases can be drop shipped, so it's not skin off the retailer's nose to make as little as 10% on an online order (granted, they must deter returns with a restocking fee). From my client base, I can see that retailers offering offer free shipping fare better. This also helps in Google. If you saw two Google results, and one offered free shipping, which would you click?
Furthermore, it's worth noting from the article that "consumers preferred free shipping over coupons, buy-one-get-one-free promotions, free gifts, gift cards or early-bird specials, according to a Shop.org study. In the same study, 35% of consumers said they would spend more online because of free-shipping offers, while 13% said they would spend less because shipping charges were too expensive."
In sum, I think free shipping is here to stay, and will likely continue to grow.
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No Such Thing as Free Shipping?
Facing Rising Costs, Online Retailers Likely to Attach Strings to Holiday Promos
By Natalie Zmuda
Published: September 22, 2008
NEW YORK (AdAge.com) -- Retailers counting on online shopping to buoy sales in a tight economy are wrestling with a big problem: free shipping.
Shipping discounts, which have become a mainstay of the holiday season, are being carefully analyzed by retailers as they weigh the benefits against the mounting costs. Transportation costs have skyrocketed in the last year, with diesel prices rising 50% year over year. In response, fuel surcharges applied by UPS and FedEx have more than doubled to 10.5% for ground packages and 34.5% for air packages.
Read full article at AdAge.com - click here
4 comments:
Hi Jason - What about free shipping from manufacturers who sell on their websites? They have the margins, but this may negatively effect their relationships with retailers as they effectively are undercutting them? Thoughts?
If you qualify for FREE Super Saver Shipping but your order also contains one or more ineligible items, you'll be charged shipping fees for those ineligible items.
Canceling items, combining orders, or changing your shipping address, speed, or preference might affect your order's eligibility for Super Saver Shipping.
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jones
Internet Marketing
In response to David's observation that manufacturers who sell online have larger margins-and can therefore better afford to offer free shipping and other incentives-I agree. They can. Are they negatively affecting their relationship with retailers if they offer incentives like this? Sure, yet I would back up a step: manufacturers already intruded on the retailer's space by selling direct online in the first place. Whether the manufacturer furthers this 'injustice', as some would say, with free shipping, it's really only a marginal additional encroachment. The REAL pain for the retailer is the manufacturer selling online direct. Offering free shipping is just the icing on the cake...or the last straw before the camel collapses.
I am in the order fulfillment business and I am seeing more of our clients offering either free shipping or one price delivery that encourages up-selling.
The trick is the ability to project shipping costs per order even though you have a wide range of possible SKUs and quantities per order.
One solution is to calculate your average revenue per pound among all your SKUs and compare this to your average ship cost per pound, knowing that ship cost per pound declines as package weight increases.
For example, typical 5 pound UPS ground delivery works out to $2.73 per pound, but this drops to only $.83 per pound for a 20 pound package to the same address.
Since your revenue per pound doesn't change, you now have a way to project ship costs per order and the potential of shipping deals on larger orders -- a win/win situation for both you and your customers.
But...if your revenue per pound is less than 10 times your delivery cost per pound, you may not be able to provide shipping offers. That is the difference between selling coal vs. diamonds.
John Lindberg - President
EFULFILLMENT SERVICE INC
www.efulfillmentservice.com
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