Ship Free or Die: Is Free Shipping Inevitable for Online Retailers?

Is Free Shipping a ‘Must-Offer’ for Online Retailers?

It doesn’t take long in the online retail world for trends to go viral. Buyers quickly jump on cost-saving perks, and “free shipping” is one of the hottest perks today. Amazon, Zappo’s and other leading retailers may have lead the way, but today’s buyers now expect online retailers of all sizes to offer free shipping.

“It’s almost as if you have to recognize that that’s part of doing business from the consumer’s perspective, and it’s built into the margin of the retailer.” Marshal Cohen, NPD Group

“Stores are not just being nice; it’s a tactic, and a necessary one these days,” said David Lewis, author of “The Brain Sell: When Science Meets Shopping.” Online retailers are working hard to keep buyers on the site to complete their online purchase. According to Lewis, an estimated 68% of online shoppers abandon their carts before checking out – for all kinds of reasons including better pricing on a competitors’ site, issues with website navigation and additional charges such as taxes or shipping.1

 

A recent survey by Deloitte found that 71 percent of shoppers expect free online shipping and 47 percent expect free returns.

Is free shipping here to stay? It is according to Endicia General Manager Amine Khechfe. “Like it or not, free shipping is here to stay,” Khechfe said. “We conducted a survey this past year on online shopping habits, and consumers listed free shipping not only as the biggest influencer when shopping online, but also as the most important shipping option and the aspect of ecommerce they’d most like to see improved in 2014.”2

Faced with such news, today’s shippers can no longer expect to go about “shipping as usual.” While it’s true that some industry sectors may be less affected by the free shipping phenomenon than others, it’s wise to explore what it will take to launch such a program before your competitors do.

Some companies, such as ADSI customer Craft Supplies, an online retailer of woodworking supplies, have opted to embrace the trend toward free shipping to gain a competitive advantage. “We were the first in our industry to offer our customers a flat-rate shipping program of $7 for orders up to $150 in value and free shipping for orders over $150 in value,” said Don Dafoe, Vice President of Marketing and IT for Craft Supplies, “To manage this marketing program cost-effectively, we needed to upgrade our shipping system and processes.” Dafoe chose to implement a multi-carrier shipping system that allowed him to add USPS shipping – a cost-effective alternative to more expensive carriers.

Other options include:

  • Offer free shipping on standard delivery options and charging for premier (such as faster or time-specific) delivery services
  • Charge for shipping on commodity or low-value products and scale delivery pricing to offer free shipping on high-value products
  • Provide free shipping options if certain carriers are used

These are just a few ideas. In addition to consulting your internal team, find out what your competitors are offering and seek advice from other shippers who are not necessarily in your industry.

Use Regional Carriers to Compete on Shipping Costs and Speed of Service

Shippers should also consider expanding their carrier portfolio to take advantage of cost-savings offered by regional carriers. Regionals can often pass along to customers savings of 10% to 40% over UPS and FedEx pricing. Most regional carriers transport packages via truck hubs instead of airlines. Trucking can be as little as 10% of airline costs. Many regional carriers also assess fewer surcharges and can offer faster deliveries for a lower cost.

Carriers such as LaserShip, for example, have built their business by focusing on the last mile and time sensitive deliveries up and down the East Coast, from Miami to Maine. By building their operations in this way, they’ve gained the ability to excel in a specific niche while keeping tight control over operating costs. This strategy allows them to customize their services in ways that national carriers cannot always readily match.

This approach of focusing within a certain geographic region and/or business specialty can translate into a winning advantage for shippers who leverage the strength of a regional carrier’s network.

For example, a medical equipment manufacturer approached LaserShip to see if the carrier could gain a service advantage over its competitors by reducing its average 5-to-6 day transit time on orders going from Florida up to New England. “We were able to help this shipper by providing a later pick up time and by injecting their packages directly into one of our regional sort facilities,” said Tom Mara, Director of Sales for LaserShip, “This shaved one to two days off his transit times. In addition to the faster delivery, we were able to extend a rate that achieved a cost savings.”

Online retailers are able to offer free shipping and other lower-cost items because they have lower margins, said Marshal Cohen, chief retail analyst at New York-based NPD Group. They don’t have to pay rent, they tend to have fewer employees, and they don’t have to pay insurance on the store.2

But traditional retailers who venture into the e-commerce world will have to compete. “It’s almost as if you have to recognize that that’s part of doing business from the consumer’s perspective, and it’s built into the margin of the retailer,” said Marshal Cohen, chief retail analyst at New York-based NPD Group.1

Draw on Your Shipping Partners’ Expertise

There are many ways to tackle the “free shipping” challenge. In addition to drawing on your internal team’s expertise to create a program, consult with your shipping system provider and your carriers. Depending upon your product and customer mix, there may be other lower cost shipping services available that you haven’t been using. Also, invite regional carriers and the USPS in to discuss your goals. In many cases, they’ll bring options to the table that may not be available with national carriers.

If you need assistance identifying regional carriers, ADSI can help. Our Carrier Library includes a wide range of carriers covering the U.S., Canada and overseas deliveries.

Additional Reading

Craft Supplies USA Enhances Customer Delivery Service with Ship-IT – and a 2-Month ROI

Regional Carriers: A Sound Shipping Strategy to Control Costs and Gain a Competitive Market Advantage

1. Danielle Braff, “Free Shipping Delivers Customers: Wise Retailers Heed Growing Expectations,” Chicago Tribune, May 8, 2014.

2. Ina Steiner, “Online Selling Trends 2014: Free Shipping or No Free Shipping?” EcommerceBytes, February 3, 2014.

Strategic Partners