The Hidden Cost of Shipping

16 August 2011

Shipping is often referred to as the biggest 'deal breaker' in e-commerce with an average of just over 50% of purchases abandoned at the shipping details page. It's that hidden (and yet completely obvious) cost that can either leave a bad taste in someone's mouth or turn them off the purchase to begin with.

While it is a necessity of buying anything online, there is no real value in it if you're a customer - it's a bit like GST, except it's much more visible. A great example of the shipping-blues is when you make a small online purchase (say $30 for a brand new fish bowl) and the cost of shipping comes to nearly half of the product cost (say $12 - taking into account all the popcorn foam and reinforced cardboard). Regardless of how 'expedited' or 'tracked' your package is, it is still a cost you wouldn't have to pay if you just popped down to the store to buy the product - and this, dear readers, is where the problem lies - the comparison to the bricks and mortar experience.

So, how can we make shipping a nicer experience? What techniques can we use for turning this nagging old ass into our prize pony? Here are some options:

Option 1. Include the shipping in the price of all your products.

Not only does this reduce the mental arithmetic in estimating what the final cost will be after shipping is added but it also leads to more customer confidence through the removal of 'hidden' costs. It will appear as though you, or NZ Post, are taking the financial hit. The potential downside is that a diligent shopper may come across the product for a cheaper price (shipping not included) somewhere else. Or the shopper may live in an unexpected location which costs more to ship to (of course a conditional statement for this situation can easily be built in, but it's always nicer to have that 'free shipping' sign up sans-asterisk).

Option 2. Use a 'Free Shipping!' promotion from time to time.

Wharton University Marketing Researcher David Bell noticed an interesting phenomenon during one of his experiments. For whatever reason, free shipping seems to act as a stronger incentive than an overall discount. Even in cases where a 20% discount out-values the cost of shipping, the free shipping proves to be the bigger draw card. The downside is that you will have to take the hit in your margin as a regular visitor would spot the price jump if you tried to integrate the cost into the base product price. You can off-set this hit by making the free shipping conditional to the total cart price (for example - "Free Shipping on Orders of $50 or More"). You will be pleased to read that support for this is coming to Smallfish very soon.

As a final plot twist, when Amazon introduced free shipping for baskets of $25+ (down from the original $49+ mark) they noticed an interesting change in the number of products purchased at once. On average, the number of items purchased dropped by one. From this analysis we can deduct that: the higher the shipping cost, the more likely people are to bulk-buy. Which leads us to...

Option 3. Subsidise your shipping to get just the right balance.

Ah, the best of both worlds. Comforting yes? Reduce the shipping cost so it's no longer a barrier but still carries the incentive to bulk-buy. What could be better? Of course this strategy will take a fair bit of 'suck it and see' to figure out just the right balance.

Here's a nice analogy: imagine your shipping cost is actually a measurement in kilometres. The further away your store is, the more likely people are to buy in bulk - if they decide to make the trip at all that is. The closer your store is the more likely people are to visit more often and make impulse purchases (more on this in the next blog post...).

Like everything proven, it takes proving. One technique may work and another may not. Don't be afraid to try things out. Once you know what you're dealing with you can make changes accordingly and continue to refine your marketing strategy.