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

“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.”

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.”
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