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Online Businesses: Don't Promise What You Can't Deliver

Filed under Marketing.

Customers love free shipping. According to comScore's 2011 survey of online shoppers, 76 percent of customers reported free shipping was important to them. And, 47 percent said they would abandon their shopping carts if free shipping was not offered at checkout. Increasing, free shipping is the price that retailers must pay (or, rather, the cost that they must absorb) to compete effectively in the online market.

A major retailer might be able to offer free shipping for each and every order, year round. However even the biggest retailers generally seek to limit the hit they take 'eating' shipping costs by either requiring a certain purchase threshold or limiting free shipping to certain peak periods. A smaller business should definitely employ one, or more, of these strategies:

  • Minimum purchase threshold. Shipping is free once the customer's total order reaches a certain minimum amount. For example, free shipping is offered for all orders over $100. Investigate whether your e-commerce solution can add a prompt to customers that indicates that they can get free shipping if they order $xx more. Make sure to provide that the free shipping automatically applies only when all the items are shipped as a single delivery--whether to only one address or in only one package.
  • Free shipping only during selected periods. Rather than having a blanket free-shipping program, you might limit the time period during which free shipping is available. For example, offer free shipping beginning with Cyber Monday (November 26, 2012) and ending on December 15. Make sure to specify the type of shipping that is free! In determining the last day for free shipping, work with your shipping services to make sure that the orders placed will be delivered in time for the holidays.
  • Free shipping on selected items. This strategy is particularly effective if you have products that you want to move or ones that you want to promote. If so, you can offer free shipping on only those items. Higher margin items also make good targets for free shipping because it is easier to absorb the shipping costs without as much damage to your bottom line.
  • Free shipping to select customers. Amazon used this model when it created Amazon Prime. An annual membership fee gets the customer free delivery for a year, along with other benefits unique to Amazon. While you might not want to go down an annual subscription path, many merchants offer loyalty programs for frequent customers. Also, many provide their Facebook fans, Twitter followers, and mailing list members special codes that entitle them to free shipping.

Expedited Delivery Must Be Carefully Calculated

Not only do customers love free shipping, a great many of them also love procrastinating. Increasingly customers wait until the last moment to order online, secure in the knowledge that expedited delivery will ensure the gift arrives in time for the holiday. Offering expedited shipping can tip the purchasing decision in your favor. However, to paraphrase Captain Jack Sparrow, "there's what a business can do…and what a business can't do." It is important to know the difference when guaranteeing holiday delivery.

While a mega-retailer may be able to guarantee Christmas delivery of products ordered on December 23, not every small business owner can do so. Don't you make that promise unless you know that you can keep it. Major retailers can fulfill from numerous locations across the country: You must ship from wherever your facility is located. Work with the post office and private delivery companies and learn the time it takes to deliver from your location to addresses throughout the country. Make sure to know the certainty of delivery as this varies with the type of shipping and the shipping vendor. And, verify the costs -- delivery to Albuquerque, New Mexico from Baraboo, Wisconsin will cost more as the required time frame for delivery decreases. 

When mapping out an expedited shipping campaign, you need to consider all aspects of fulfillment, including having enough employees available to pull, pack and ship the orders as the holidays draw nearer.  Once you have this information, you can establish a cut-off date for guaranteed delivery.  

As with free shipping offers, you need to guard your product margins. Determine the true cost (employee overtime, postage charges, etc.) and price your expedited service accordingly.

Review and Fine Tune Your Shipping Strategies

You cannot run a successful business if you do not monitor your business metrics on an ongoing basis. This applies to the shipping costs as well. It is essential that you understand both the costs and the benefits of offering free shipping.

Many e-commerce solutions have analytical tools included with the programs. Find out what is offered by your vendor and make full use of those tools. Regardless of what is included with your e-commerce solution, you should be tracking the following on a regular basis:

  • Number of orders. Monitor for increases during free shipping promotions
  • Number of shopping cart abandonments. Look for decreases during free shipping promotions
  • Average cost that you pay to ship each order, based on type of shipping
  • Average cost paid by customers for shipping, based on type of shipping
  • Average value of order shipped with free shipping
  • Average value of orders shipped without free shipping
  • Average conversion rate for free-shipping promotions vs. standard shipping

By analyzing this information you can determine whether free shipping is draining your bottom line or is being offset by increased conversions and increased spend per order. These metrics can also be used to fine tune your free shipping strategy. For example, you will be able to quantify the impact of setting the minimum threshold at $50, rather than $75.

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