Free Shipping is a staple promotion among online retailers and for good reason. A recent PayPal and comScore study showed that 43% of shoppers abandoned shopping carts because of shipping costs. That leaves 57% of shoppers who started a shopping cart to go through your checkout process and dropoff because of other reasons (i.e. taxes, price shopping, etc.). Depending on numerous factors, your conversion rate may be around the 2% range.
Free Shipping may be more of a drain on retailers’ bottom line nowadays because of rising fuel costs. Recently, UPS updated their fuel surcharges to as high as 32% for air shipments! So this opens up a variety of questions for an online retailer that wants to increase (or at least maintain) year over year revenue numbers in this not-so-favorable economic climate.
Should I Keep Free Shipping?
Dig into your numbers and see what impact free shipping has on order volume, conversion rate, average order value, shipping costs, shipping revenue and margin before and after the fuel prices rose. If these numbers were favorable before fuel prices became burdensome then you need to consider keeping the promotion active and changing some qualifiers. After all, this is a temporary (not sure how temporary) situation and economic downturns are an opportunity to gain market share and grow rapidly when the economy turns around.
I have always approached free shipping promotions as a way to boost order volume, units per transaction, average order value and conversion. To do this I put in minimum order values to qualify for the promotion. There are multiple factors to consider, including: average online order value, shipping discounts you receive and your competition.
As a rule of thumb, I start with the minimum qualifying order value as the online average order value. Then I look at what increase in AOV I’d need to achieve to offset the lost shipping revenue to maintain a favorable margin. In most cases this has turned out to be 15% more than current online AOV. What you’ll find is that you may realize a 40% increase in actual AOV from the promotion.
Your shipping discounts and competition will weigh in on where you actually set the minimum order qualifier. If you ship out large volumes with UPS or FedEx you probably get great discounts. If not, renegotiate your rates with your rep and be sure to use their competitors to your advantage (i.e. tell your UPS rep that you’re strongly looking at FedEx for ground shipments and vice versa). If your own competition is offer free shipping at lower order amounts then you need to see what you can do to get near that level because you want to take away their customers. This leads into the next question….
What Alternatives Do I have?
To cut down on your shipping costs and offer free shipping at low order amount qualifiers you can consider using USPS. Using regular mail offers advantages over the other carriers because it’s a lot cheaper. However, disadvantages are present when using USPS. For example, you don’t get tracking with regular mail. Tracking only comes with Priority mail and even that is close to useless because you only see when it leaves and when it reaches the customer. The lack of visibility of what happens in between can cause customer service nightmares. But, it’s still worth a look if you’re selling non-perishable items and tell customers up front what to expect.
Look at your packaging materials. Can you cut down on your box dimensions, the type of dunnage used, and if product can be shipped without a box. The later is a perfect opportunity for apparel retailers and book retailers to use biodegradable plastic shipping wrappers because it can be folded down to nearly the exact dimensions of the product and is much lighter than using a box and dunnage.
When marketing your free shipping promotion be sure to use some real life cues to help get your message across. By shopping online your customers can save money (and time) by not traveling to a store and standing in line and they may save on sales tax.
Thursday, July 17, 2008
Monday, July 14, 2008
Online Investment
In the most recent issue of Internet Retailer (July 2008), the Publisher’s Letter (written by Kurt Peters) talks about Moody’s Investor Services recent move to more heavily weigh a retailer’s online revenues when rating their debt. “A Strong online presence is considered a ratings positive more frequently than in the past because it represents such an important channel of distribution and can mitigate declining comparable-store sales trends,” according to Moody’s.
There were a couple points driven home in this article that new and existing multi-channel retailers should keep in mind as they assess their own online investments. But first, take these numbers into account:
Moody’s has a 40% share of the worldwide credit ratings market
First quarter 2008 online sales grew 13.6% year over year versus retail sales growth of 2.8% for the same period
Online sales growth has been very strong for several years as the shift of consumer spending from bricks and mortar to online continues. As this growth continues the percentage increase will decline because the revenue base continues to grow. Taking the news from Moody’s, you can bet companies are taking this seriously and looking very hard at how they invest resources into their online business.
For smaller retailers this is an opportunity to carve out niches and leverage growth to compete effectively and take market share over time. If you don’t have a large budget, carefully spend your money in those areas that will grow your business and areas that will support that growth. There are a lot of great tools out there that generate incremental revenue, but, that increase may not be worth the investment of your limited resources.
Focus on areas that grow your build your brand, generate sustainable revenue and increase market share. Look at your customer service. Are you taking care of customers to the fullest and increasing the profitability of the relationship? Look at your fulfillment…are you cutting unnecessary costs and finding ways to encourage sales conversions? Look at your site…is it efficiently converting visitors into customers?
As mobile commerce becomes more of a reality with devices such as the iPhone and Blackberry its up to the retailer to step up and take their piece of the pie. As a consumer, I have a web app loaded on my iPhone to compare prices when I go shopping at stores. On several occasions, I have gone into a store (i.e. Target, Barnes and Noble) and used this app to find better prices online and even completed the transaction before leaving the store. This is going to happen more and more as people have better mobile devices and want more convenience in their hectic lives.
Mobile commerce is going to quickly become a reality for some of our retailers in the coming weeks and we’re excited to see the growth. For these partners, they will be the first in their respective industries to have a mobile optimized site. These sites will be mentioned after going live.
I suggest you take a few moments to assess your online investments and determine where you’re headed. If you’re in a rut, you need to quickly rejuvenate as the holiday season approaches. Speaking of holiday, you should be acquiring more new customers than at any other time of the year and you need to groom that relationship. Every order that leaves your door is an opportunity to create or nurture a relationship. Do simple things over the holiday to make your customers feel appreciated. Include a simple holiday card in a box thanking the customer and wishing them a great holiday season. If the order is a gift for someone else, make sure that package contains everything it needs to and everything looks perfect because it’s about to go to a potential new customer. Start early and you’ll be thankful later.
There were a couple points driven home in this article that new and existing multi-channel retailers should keep in mind as they assess their own online investments. But first, take these numbers into account:
Online sales growth has been very strong for several years as the shift of consumer spending from bricks and mortar to online continues. As this growth continues the percentage increase will decline because the revenue base continues to grow. Taking the news from Moody’s, you can bet companies are taking this seriously and looking very hard at how they invest resources into their online business.
For smaller retailers this is an opportunity to carve out niches and leverage growth to compete effectively and take market share over time. If you don’t have a large budget, carefully spend your money in those areas that will grow your business and areas that will support that growth. There are a lot of great tools out there that generate incremental revenue, but, that increase may not be worth the investment of your limited resources.
Focus on areas that grow your build your brand, generate sustainable revenue and increase market share. Look at your customer service. Are you taking care of customers to the fullest and increasing the profitability of the relationship? Look at your fulfillment…are you cutting unnecessary costs and finding ways to encourage sales conversions? Look at your site…is it efficiently converting visitors into customers?
As mobile commerce becomes more of a reality with devices such as the iPhone and Blackberry its up to the retailer to step up and take their piece of the pie. As a consumer, I have a web app loaded on my iPhone to compare prices when I go shopping at stores. On several occasions, I have gone into a store (i.e. Target, Barnes and Noble) and used this app to find better prices online and even completed the transaction before leaving the store. This is going to happen more and more as people have better mobile devices and want more convenience in their hectic lives.
Mobile commerce is going to quickly become a reality for some of our retailers in the coming weeks and we’re excited to see the growth. For these partners, they will be the first in their respective industries to have a mobile optimized site. These sites will be mentioned after going live.
I suggest you take a few moments to assess your online investments and determine where you’re headed. If you’re in a rut, you need to quickly rejuvenate as the holiday season approaches. Speaking of holiday, you should be acquiring more new customers than at any other time of the year and you need to groom that relationship. Every order that leaves your door is an opportunity to create or nurture a relationship. Do simple things over the holiday to make your customers feel appreciated. Include a simple holiday card in a box thanking the customer and wishing them a great holiday season. If the order is a gift for someone else, make sure that package contains everything it needs to and everything looks perfect because it’s about to go to a potential new customer. Start early and you’ll be thankful later.
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