Top 10 Strategies to Afford “Free” Shipping! An Essential Guide for Online Sellers

By October 6, 2014 News
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If you are not offering some type of free shipping today, research shows that you’re losing sales, customer loyalty, revenue per sale and product margin.

You simply have to do it.

In a recent Harris Poll, 66% of online shoppers named shipping costs as their biggest online shopping pet peeve, far ahead of the next biggest complaint (getting something that looks nothing like it did online, which was cited by 38%). 81% said free shipping would make them more likely to shop online than in a Store.

85% of online buyers in a National Retail Federation study preferred free standard shipping amongst the five most popular promotions when shopping online. In fact, “free shipping” was chosen 166% more than the next best promotion!

Boston Consulting Group found that shoppers actually want free shipping more than they want lower prices on the products they are buying. Forrester Research reported the number one reason for cart abandonment is the buyer’s perception that shipping costs are too high.

Other research shows that 20% of consumers cite free shipping as the single most important factor in where they shop online, and 19% say they’ll pay full price for an item, if free shipping is offered (freeshipping.org). A 2014 comScore study showed that 58% of shippers will actually add items to their cart to qualify for free shipping.

Still feel you can’t afford to offer free shipping?

Yes, shipping costs eat away at profits. But rather than avoid free shipping, leading online sellers employ multiple strategies to keep shipping costs low as low as possible. Here’s how you can, too.

1. Deferred Only. Offer free delivery only for lower cost deferred shipping services. 85% of shoppers are willing to wait 5 days for an online order. And if free shipping is offered, 83% are satisfied with 7 day delivery.

FedEx SmartPost, UPS SurePost, UPS Mail Innovations, Newgistics, DHL Global Mail and OSM Worldwide are some of the larger postal consolidators that offer 2-7 day delivery to the residence at significantly lower pricing than Air and Ground services.

2. Go Postal. Shippers that add the US Postal Service (USPS) to their carrier mix can significantly drive down costs and improve service. The USPS enjoys many unique advantages over the private carriers. They already go to every door, every day. Other carriers often need to make an additional stop, especially to residences. The USPS simply drops off parcels with the rest of the Mail.

Many USPS products are competitively priced, especially when compared with fully landed costs– with special handling and surcharges included – with UPS and FedEx. Rates are offered at several pricing options: Retail, Commercial Base, Commercial Plus and custom Negotiated Services Agreements (NSA). There are also many flat, unlimited weight and Regional Rate Options.

A pricing analysis reveals that the USPS is particularly competitive for lightweight, residential packages especially to close-in zones. It’s a low cost choice for offshore shipments to AK/HI as well US Territories. It offers free packaging, free pickups and free Saturday delivery. It is the only carrier that offers First Class pricing for parcels that weigh under a pound with delivery service standards within 1-3 business days.

3. Ship-to-Store. Shipping consolidated packages to a single location is significantly cheaper than shipping individual, lightweight packages to multiple residences.

Here’s how ship-to-store strategies work: The customer makes a purchase on the retailer’s website and chooses to pick up their order in-store; the retail location is notified of the incoming order, and fulfills it using in-store inventory. Alternatively, if an item is unavailable at the local store, it can be shipped directly from a distribution center, another store, or even a vendor location. Lastly, the customer picks up the item at their convenience.

And it’s another great way to increase order value. In a study of Shop-a-Tron merchants, once in a store, more than 40% of in-store pickup orders resulted in additional sales. According to Forbes, in-store pickup is emerging as one of the most prominent ways to blend the online and offline shopping experiences.

More and more retailers are beginning to launch in-store pickup programs as a way to boost sales and increase online conversions: 70% of the top 10 retailers offer in-store pickup of online orders. However, only about one quarter of the remaining 30% provide the same option.

4. Build into Product Cost. Remember the BCG study that found shoppers want free shipping more than they want lower prices on the products they are buying. Simply build shipping charges into the product cost for certain items. Let’s say the target product price at desired margins is $90. Sell it at $95 and include free shipping. Companies like Zappos are able to collect close to 100% margins – in an extremely competitive and in many cases, low margin shoe industry – in part by offering free shipping & returns.

5. Limited Products. Advertise free shipping, promote free shipping, and do free shipping! But limit it to those products that make the most economic sense. Do not offer free shipping on items in which you’ll incur dimensional or oversize charges, assembly costs, high insurance fees or other extraordinary costs.

Conversely, offer free shipping only on higher margin products that can absorb the additional shipping expense. According to Baird Equity Research, only about 10% of Amazon’s physical items are available for Prime.

6. Dollar Threshold. Offer free shipping if the dollar value exceeds a set threshold. It’s another page out of the Amazon playbook. If you’re not an Amazon Prime member and still want free shipping, Amazon says “no problem.” Just increase your order size to more than $35, and we’ll throw in the shipping. It’s a great way to increase order value. 58% of shippers will actually add items to their cart to qualify for free shipping (comScore, 2014).

7. Improve Parcel Discounts. Seek benchmarks to understand how your rates compare with other shippers. Small changes to your carrier agreement can have a large impact on overall savings. Quantify which accessorial charges affect your company the most and target these charges for waivers or reductions during negotiations. In addition to pursuing lower accessorial charges, don’t overlook opportunities to reduce overall discounts and minimum shipment charges.

8. Go Regional. Regional carriers like Eastern Connection, LSO, OnTrac, Spee-Dee Delivery, Pitt Ohio, LaserShip, Prestige Delivery, Courier Express and others offer reliable parcel delivery services at rates as much as 40% less than national carriers.

Like the name connotes, regional carriers serve a specific region within the U.S. and are ideal for shippers with multiple distribution centers, especially if the D.C.’s are aligned to the regionals’ delivery footprint.

9. Mine Parcel Invoices. According to industry estimates, each year more than $3 billion in “guaranteed” service claims are not refunded because claims are never filed. Companies that take the time to audit invoices realize the benefit from this often overlooked savings Opportunity.

And it’s not just late shipments entitled to money back guarantees, but also missing discounts, overcharges, shipments manifested but never shipped, and other erroneous charges common with parcel invoices.

For companies unable to audit internally due to a lack of resources, there are a number audit & payment firms with weekly savings ranging from 1% – 15% of the total invoice amount. A qualified freight invoice audit firm ensures you never overpay your carriers.

10. Least Cost Routing. Modal optimization – choosing the right carrier to derive the fastest delivery at the lowest cost – requires enabling technology. The right technology will take the guess work out of routing packages. Explore ERP, TMS and/or multicarrier manifesting options that allow for multiple carrier rate shopping. Be sure the technology searches includes package dimensions, weights, zones, surcharges, and includes the unique terms and incentives of your parcel pricing agreement.

In summary, there are multiple strategies you can explore offset the cost of shipping so that you can provide low cost or free shipping, for at least some of your products. The right combination of these shipping cost analysis strategies will help you reduce logistics expenses, improve delivery transit to your customers, increase cart conversions and order values, and enhance customer loyalty.

 

Shipware

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