Monday, September 12, 2011

E-Business & Shipping

Shipping Shock: Why Ready-to-Buy Customers Bail
Although consumers are certainly enticed by the prospect of free delivery, they are also savvy about purchase prices. If the price of the product incorporates the shipping costs and inflates the price above the same or similar products elsewhere, the consumer will likely be put off at an early stage. With price comparison websites, it is even easier for the discerning buyer to ignore a marked up product.
More than 50 percent of e-commerce shoppers cited shipping as a reason for abandoning their shopping carts online, according to research conducted by Royal Mail, the UK equivalent of the U.S. Postal Service.

Furthermore, 43 percent of consumers' retailer choices were influenced by their delivery experiences and options, the Interactive Media in Retail Group found.
When you consider how much it costs to acquire a new customer on an e-commerce site, it becomes apparent that attempting to make a small extra profit by adding some extra margin on top of delivery costs or not supplying all of the possible delivery options at checkout can be futile.

Mistakes like these mean that e-tailers are not just missing out on the delivery margin, but rather on the entire basket's value and, worse still, the entire potential LTV (life time value) of the consumer. It is therefore important that e-commerce firms take into account the psychology of the consumer when it comes to shipping.

The key factors that influence the buying decision when it comes to delivery options online are price of delivery, speed of delivery, delivery options and carrier choice. The transparency and clarity of these key factors early on in the e-commerce transaction are also major contributing factors.

Free Delivery
Free delivery is becoming a cornerstone for a growing number of e-commerce websites. Free delivery can easily be used as a promotional tool for online companies -- one that not only draws in new customers but also encourages repeat usage from established customers.

This could not be more clear than it is on Play.com, which has ingrained free delivery not just as a nicety but as part of its business model. This is proved by its tag line across the site, "FREE DELIVERY ON EVERYTHING." Its delivery policy is outlined immediately for any potential customer and highlights its USP.
Although consumers are certainly enticed by the prospect of free delivery, they are also savvy about purchase prices. If the price of the product incorporates the shipping costs and inflates the price above the same or similar products elsewhere, the consumer will likely be put off at an early stage. With price comparison websites, it is even easier for the discerning buyer to ignore a marked up product.
Free shipping on low-value items can increase revenue while simultaneously eating away at company profits. It is for the company to decide whether factoring in free shipping into the overall budget will ultimately yield a positive return on investment.

Importance of Transparency
Commonly the registration/login page is the point in the user journey where many e-commerce transactions fail if the terms around delivery have not yet been clearly stated. Vistaprint, for example, is a very large and successful company, but it relies on a risky strategy when it comes to shipping costs -- hold them back until the very last moment.

Once the customer gets to checkout, delivery prices are finally displayed, ranging from Pounds 18 to Pounds 3.08 (if a customer is prepared to wait 21 days). While some consumers will be indifferent to shipping costs, the unannounced nature of last-minute additional fees will often scare off others. Therefore, in the case of Vistaprint, the chance of re-use and customer retention is likely to be low due to the lack of transparency throughout the whole process. While this will certainly affect the dropout rate, it is a strategy that has successfully worked for the company for many years.

On the other hand, Amazon (Nasdaq: AMZN) maintains highly transparent shipping costs, whether charged by itself or by sellers who operate on the site. On product pages, alongside the product price, it clearly displays the various delivery options. Product pages on Play.com also carry great transparency and clarity in regard to delivery -- not only mentioning that it is free, but also providing an approximate time frame. Play's take on delivery essentially removes any chance for discrepancies or confusion on the part of the user.

Many e-commerce sites that offer free shipping will state certain provisos, such as a minimum spend of US$25 or shipping to an American address. It is in Amazon's best interest to clearly outline these requirements to any potential consumers before they reach the checkout stage.

One of the most interesting delivery promotions run by Amazon is Amazon Prime, which is experiencing huge success. For a yearly fee of around $79, consumers enjoy an "all you can eat" shipping service of free two-day deliveries on all items purchased.

During the 2008 holiday season, Amazon Prime enrollment was as high as 4.8 percent of purchasers, according to Compete.com. This tells us that consumers clearly value speedy, reliable and up-front delivery options.

From an e-tailer's point of view, the lock-in effect of having a consumer pay a subscription for preferred delivery options is substantial. A returning customer, in this case, is worth more than the revenue from an increased shipping cost. Although consumers can be discouraged by shipping costs, the psychological effect of displaying them at every stage of the buying process enforces an e-tailer's trustworthiness.

Context of Shipping Costs
The effect shipping costs will have on a potential consumer is undoubtedly dependant on the item(s) that need to be moved. For example, a customer may be outraged by the thought of paying Pounds 6 shipping for a DVD -- but would be ecstatic if the same cost were applied to a newly bought washing machine.

Within this paradigm, the majority of e-commerce sites do not have universally static shipping costs across varying products but rather base them on item prices or dimensions. Similarly, there are scenarios in which the consumer is willing or even expecting to pay a seemingly higher shipping cost. A consumer who is buying a fragile item, is shipping internationally or has a niche shipping requirement such as a chilled delivery vehicle, will expect a costlier delivery charge.
Consumers have also come to expect a slower shipping service if delivery is free of charge. Conversely, the quality and speed of shipping should be reflected if the consumer pays a premium for delivery.

Comment: What are your experiences of shipping upon ordering online? How much are you willing to pay to get a product shipped to Canada? Is speed of delivery important? Is free delivery ‘free’? Explain. What other options are available in respect to shipping products?

8 comments:

  1. From my experiences ordering online and getting my products shipped to me has never been an issue. I have ordered various products off of the following sites; Lululemon, Hollister, Abercrombie, Tiffany and EBay. All of the following sites have different shipping costs which sometimes sway me into buying that product I really want. When I get a product shipped to Canada I will only pay a certain price, it all depends on what it is. If the product is something of large quantity then I will be willing to pay more. I think that speed of the delivery is important if you need the product right away. I usually like to have my product right away once my transaction goes through, however I have never paid to get urgent shipping . I usually just wait and take the standard time that the company tells me my products will be here, this way I don’t have to pay extra. Sometimes companies say that the delivery is free; this isn’t always the case because there is always a catch that comes with it. In order to get free shipping on some sites I have to spend up to a certain price then I will be able to get that deal. I like shopping at the Lululemon website because it is free shipping in Canada and I don’t need to spend up to a certain price in order to get that benefit. This is a huge bonus for me because instead of making a trip up to Winnipeg and wasting gas just to go to that store, I can just go online and get my products delivered to me for free. Some other options for shipping products are FedEx, Canada Post and UPS. These options can be slower or quicker depending on how fast you want them and how much you pay.

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  2. I rarely purchase items online that need to be shipped to me. Any of my experiences have been elongated, frustrating, and costly mainly because of border issues and hidden shipping costs. Most of my online purchases are made up of music, ebooks, and other data-based things which require no shipping and I have nearly instantly. The amount I am willing to pay to have an item shipped to Canada is dependent on the product; I would be willing to pay small extra costs for a big enough order, but paying 10% of the value of the new car you bought in the US would not be acceptable for shipping. Speed of delivery should be part of the service that companies are focusing on, especially if a customer is paying for that service.
    Free delivery is never free because a company won't spend money that they don't have to. More likely is that every purchase, despite how inexpensive, will contain the "free" shipping cost. Shipping products is usually limited to the affiliations between companies and shipping companies, but they have the choice of companies such as Canada Post, FedEx, etc.

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  3. I do very little ordering over the internet, but when I have I have only had a few instances when I had to pay shipping and more often then not I was able to have the shipping in with the price. Only once did I have to pay the shipping separate. When I would consider paying shipping the most I would consider paying would be $4 to $5. I will admit I am fairly cheap so paying high shipping would not be an option for me and then I would look for alternative ways to get my item elsewhere. If I ever did though order something online that I couldn't get through any other means I would consider speed delivery an asset because if I did have a time schedule I was following then it would be a high priority. Free delivery is not free. This is because companies will usually, nore often than not, fix their shipping cost into the price, so unless it is apparent on the ad that you are paying shipping you may not even know because they've put it in the price. Some other options of shipping products are by Air Frieght, Train, Bus/Truck, Priority Post, and Coouriers.

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  4. I would say I've done my fair share of online shopping. Sometimes it is the easiest cheapest way, and the next it's an outrageous amount. One time I found a dress that I really wanted. I paid around $20 for shipping costs. When it arrived it was to big and I needed to ship it back. But because it was shipped outside of the states it did not come with a free exchange/return label. So I had to pay the return shipping, lucky they sent it back to me for free. So for me I guess it depends on how much I want it as to how much I'd pay for shipping.
    Speedy delivery for me is not super important. It is usually like triple the original shipping value, so most of time I would just take the normal shipping, forget about it and enjoy the surprise later.
    I think free shipping can actually be free shipping. On some sites if you spend a certain amount of money, then you get free shipping. In that case, they would not be able to add those extra costs into the product price ahead of time. But on other sites where it is always free shipping, I think they've just added the extra costs into the product price.
    The best alternative I've come up with it just shipping to the states. A lot of the time the ground shipping within the states is pretty low if any at all. There is a man that runs a little business right on the other side of the border that you can ship your things to. You pay him a small fee, and hope the border guys are nice to you and you do not have to pay duty for being a regular. Even if you are required to pay the duty, it is still substantially lower and faster than shipping it right to your home.
    But other than that, you've got the main companies like UPS, FedEx, or Canada Post.

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  5. I have never ordered anything online. I know from other people that shipping from the States is ridiculous. I know people who have had their stuff shipped to a friend in the States who then mails it to Canada. It is often way cheaper then what the person would have paid from the company.

    I am not willing to pay very much to get a product shipped to Canada. Speed is not that important to me. Obviously when you order something you want it right away but if it's not something I need right away then I am willing to wait.

    I think that in some cases delivery really is free but in some cases I think that it's not really free. I know that some companies will jack up their prices so that delivery is included in the item that you are buying. If people looked around on different sites for that same item I think they would find that some sites charging delivery may be cheaper.

    Other options in regards to shipping would be to get it shipped within the country and have another way to get it from that place. Example: Ship your item from Amazon to a friend in the states and have them mail you the item. I have seen this work in the past and it's way cheaper. You would have to research other mailing companies to see which option would be your cheapest.

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  6. I have always been very pleased with past shipping experiences when I've ordered products online. I would much rather order products online instead of methods like odering through a catalogue. I say this because with some online shipments you can actually track your purchase, or least be given some sort of idea of your products time of arrival. On that note, speed of delivery has never been a major concern of mine; most products I purchase online are delivered within a reasonable amount of time (2-4 weeks). Furthermore, when I purchase products online I anticipate there to be shipping costs; which I don't mind paying depending on the size, quality and how much I actually want to buy the product. There has been a few occasion where I recieved "free shipping" on a product. However when i compaired the total cost to the same product from a different seller who has shipping charges it adds up to be, close to or the same as the product with free shipping. In caes like this the "free shipping" is definitely a sales gimmick to beat the competitors. Some forms that online product could be delivered are; if they are products from overseas they are first moved by some kind of cargo ship, then there is UPS, Canada Post, FedEx, Purolator, and possibly a U.S. postal service.

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  7. I have ordered online quite a bit over the years and am very comfortable with the process. I know which sites are safe, charge reasonable shipping, and provide quality products. I shop online for items that I can't find in rural Manitoba; be it more original clothing, books or hard-to-find items for gifts and believe that waiting for shipping (normally 3 weeks) and dealing with American businesses is just a small part that comes with the whole package. If I needed a product that quickly and was placing a large order, the value in using an independent express shipping company (like FedEx or Purolator) might be an option but not something I would make a habit of. Most of the e-businesses I frequent do provide free shipping as a part of their customer loyalty program, but if your order is above a certain weigh Canadian shipping and storage fees must be paid as well.

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