Flat-Fee and Other Online Shipping Gimmicks to Soothe the Savvy Customer

  • AUTHOR: StartupNation Writer
  • DATE: 10/9/2006

“As exciting as e-commerce is, it’s still a bricks-and-mortar world
when it comes to the average American shopper. So some of the most
powerful lures in online retailing these days focus on cheap shipping.

“Fixed
shipping fees make the purchasing decision cleaner for consumers,” says
Matt Rutledge, CEO of Woot Inc., a Carrollton, Texas e-tailer of
consumer electronics and other gear. “For them, you’ve got to make it
akin to driving out to buy something at the store. It’s neat and clean.

“The further away that you can tuck shipping distastefulness from the online-buying experience, the better.”

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That
bit of psychology explains the popularity of e-tail icon Amazon.com’s
flat-fee Prime shipping service, launched in 2005. For $79 a year,
members get unlimited, free two-day shipping with no minimum purchase.

The times, they have a-changed

Once
upon a time, not very long ago, e-tailers thought way differently about
shipping fees. Many sites showed their high shipping fees only near the
end of a transaction — a margin-enhancing “gotcha” — to make up for one
of the high costs of selling on the Web. But savvy consumers who spent
a little time comparing prices often found that shipping fees wiped out
the “deal” they thought they were getting.

Today, the
Web is still a low-margin environment, but Prime, among other models,
was a response to higher consumer awareness of — even preoccupation
with — stiff and often padded shipping charges.

“People
who are online love free shipping, and if there’s a shipping charge,
they like to know what it is before they totally check out,” says Miki
Dzugan, president and marketing chief of Rapport Online, an Internet
consulting firm in Sedona, Ariz.

Some cold, hard facts

A
recent Jupiter Research survey found that free shipping is the top
promotional method of encouraging online buying. In another recent
study, rival market-research firm Forrester Research reported that 57
percent of abandoned online shopping carts were tied directly to
surprise shipping fees at the end of a purchase.

Forrester also found that 88 percent of the online shoppers surveyed have left items in a cart without completing the purchase.

What’s the math?

Reporting on Prime, Inc. magazine
asked Amazon founder and CEO Jeff Bezos how the company can afford “the
guy who pays you $79 so he can order a $3.99 razor whenever he needs
one.” Bezos said, “It all works out. Somebody else will order an $800
digital camera. On average, it’ll pencil out OK.”

Jason
Billingsley figures that for a return on investment for the average
Prime customer, he must order only six to 10 times a year, depending on
order size and content. Billingsley, vice president of marketing for
Elastic Path Software, in Vancouver, says that’s because the typical
cost of two-day shipping in North America is $7 to $10.

“Amazon’s
genius in launching Prime was that it essentially became like a buyer’s
club, or an insurance policy,” Billingsley adds. “You may or may not
use up your quota. It also promotes loyalty to Amazon, because there’s
little need for consumers to look around for free-shipping offers.”

Other takes on the tack

Yoox.com,
a fashion and accessories e-tailer, charges $7.95 for regular shipping
and $14.50 for express — no matter the order. “That’s because we
continually want to have the best customer care and be fair, and not
dissuade people from buying more product from us for larger amounts of
money,” says Hilary Bowers, co-founder of the New York City-based
company. “It costs us far more than that to ship most orders.”

More
e-tailers are moving right past flat-fees to free shipping. Petsmart,
the online pet supplier, offers it for orders of more than $75.

“We’re crossing some kind of new threshold here,” says Mark Taylor,
chief logistics officer of RedRoller, a Norwalk, Conn., provider of
software that compares shipping costs. “Customers are the ones that are
winning.”

  ABOUT THE AUTHOR:
StartupNation Writer
StartupNation Writer

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