Did you know that 50% of online shoppers abandon their baskets once the delivery fees are added to their order? However, shipping and handling costs remain, to this day, a creative way to differentiate yourself from your competitors.
In this article, I will share with you a few ways to avoid frustrating your customers with sky-high shipping costs, without necessarily losing out!
Standing Out: Even More Crucial Online
Today, with more than 24 million online stores out there, whether you’re selling clothes, cell phone cases, electronics, or cereal marshmallows, you have to be able to differentiate yourself from your competitors more than ever.
What we often mean by differentiation in marketing is a competitive advantage, or a perceived benefit like customer service, amongst other things. Business owners need to understand that with the accessibility that the Internet provides, comparing prices is easy for customers thanks to tools like Camel Camel Camel. As a result, price differentiation is no longer a viable option and will prove to be destructive for your industry in the long run. This is especially true for retailers with no direct influence on the products they sell.
Don’t despair because:
In spite of this, without necessarily having to reduce your profit margins or tackling the sale price directly, you can use various delivery price display methods to manipulate existing and potential customers’ perception. This will leave them with a feeling of getting more bang for their buck which will lead them to buy on a greater scale, and more frequently.
A reserve price: what is that?
Before delving deeper into shipping cost allocation strategies, it’s important to take a look and understand the notion of reserve prices. Indeed, you should be aware that we all have a maximum price that we are willing to pay for a product. This is different for everyone and can be summed up with the following equation:
Reserve Price – Price – Shipping = Positive
In other words, if the result of the reserve price of a client subtracted by your sale price and shipping cost is positive, this will result in a purchase. Otherwise, the client will go shop elsewhere or might delay his or her purchase. This comes down to a fundamental marketing concept:
You do not decide the sale price of your product, the market does.
Maximum Delivery Time: because there are always limits to our patience!
Delivery time is also a factor to consider. Seriously, every one of your clients has a maximum delivery time that they are willing to wait for before they receive their product. Even if the answer to the equation detailed above remains positive, your client will not complete the purchase if you do not meet their maximum delivery deadline, and they will look to your competitors to better satisfy their needs.
It is therefore important to understand the direct impact that delivery has on online purchases and it must be a priority of yours to answer the abovementioned criteria in order to satisfy your clients.
CAUTION! I’m not saying that 100% of your clients expect 2-day deliveries.
According to an e-marketing survey conducted in 2020, 54.6% of online shoppers in the United States would be willing to wait 3 to 4 days to receive their products with free delivery, whereas 12% of buyers would not be prepared to wait more than a day or two before opting to pay to receive it sooner.
You can’t please everyone, right?
So, the best solution to ensure a satisfied clientele is probably to undertake a “paying user’ scheme with different delivery options at different costs.
Right! Now that we understand these two inherent delivery concepts, let’s jump into the heart of the matter!
You’ve probably realized, your online delivery strategy has a direct impact on conversion, satisfaction, and retention of your clients.
As a result, you need to be minutious when determining your strategy:
Take into account your clients restrictions (reserve price / delivery times, etc.) and consider your competitors: are they offering free delivery? At what cost (pun very much intended)?
Here are a few tips to help you get started on a strategy that will increase your client’s satisfaction, without affecting your wallet:
Generally speaking, free delivery (for its own sake) is not a recommended solution. It puts all shipping and handling costs directly on your business and can cost you dearly in the long run. This is especially true considering that your customers will become accustomed to it and it will be very difficult for you to U-turn when the situation is no longer profitable for your business. For this reason, we recommend opting for more creative solutions as listed below.
Free Delivery Through Special Offers
With all the marketing tools available today (Remarketing, Pop-ups, email marketing), it’s super easy and inexpensive to offer your clients a limited time offer as a way to increase their feeling of urgency and scarcity and lead them to buy.
In such a scenario, covering the delivery fees can be a useful way to convince your customers that you are truly presenting them with your best offer.
Indeed, rather than offering a discount code for 15%, why not offer them free delivery with their first purchase? The same notion applies to VIP clients who regularly purchase from you. Don’t forget to take care of them as well!
Free Delivery With Minimum Purchase Amount
It’s not uncommon for businesses to require a minimum purchase amount before offering to cover delivery costs. Indeed, it’s an effective strategy often used by retail giants like Amazon, Walmart, and Best Buy just to name a few. This method works so well because it exploits a particularly well-known behavioural reflex.
The Power of Free
This concept, discussed in many interesting books such as ‘Predictably Irrational’, explains this particular interest we have for free stuff. Indeed, offering free delivery with a minimum purchase amount often incites the consumer to purchase an extra item in order to meet this required amount. As a result, the customer is left with the feeling of having saved on the additional item rather than having spent on delivery. Interesting, isn’t it?
That being said, be strategic!
Ideally, when the time comes to set your minimum purchase amount, don’t forget to analyze your e-commerce and Google Analytics data to generate new revenue and avoid cannibalizing your existing sales.
For this reason, it’s important to assess your average basket size through different variables. For example, by assessing your average basket size based on your consumer’s location, you could decide to adopt a minimum purchase amount that is determined geographically.
In any case, try to set a minimum purchase amount that is higher than your average basket size. Otherwise, the strategy won’t have a positive impact on your sales if your clients already meet the minimum purchase amount.
Free Products with a Delivery Cost… Say What?!
You read that right!
This strategy, still very rare in Quebec, isn’t conventional, but it seems to have worked for several online businesses.
This strategy works best for niche “Dollorama-type” products that don’t cost very much to deliver. Actually, it would be pretty insane to offer a free couch with a $2500 delivery fee. However, getting a “free” $10-20 value product and only having to pay a $10 delivery fee might be a very interesting proposition.
Notice how I put “free” in quotation marks?
The quotation marks are quite important here because, in reality, retailers include the cost of the product into the cost of the delivery.
Here’s an example:
You’re looking to sell bow ties online. Every bow tie costs you $1 to make, $2 to ship, and can be sold for $10. So instead, you choose to launch a promotion where you offer the bow ties for free and where the customer only needs to pay for the $10 shipping. As such, you still make a $7 profit.
Once again, it’s about taking advantage of a tactic that exploits the notion of “the power of Free” and which effectively stimulates the customers’ impulsiveness to buy your product.
*Beware: this method definitely does not apply to all types of products and industries, but I challenge you to try to find a way to use it if you feel you could benefit from it.
Certain types of customers are attracted by free delivery offers, sometimes mistakenly assuming that they are benefitting from an advantageous offer.
On the other hand, certain types of customers appreciate offers where the delivery cost is split from the product for being more transparent. As such, for certain product categories, it might be worthwhile to go against the grain and charge full price for a delivery as a way to increase your profitability.
Here’s a common example: home appliances.
It’s quite logical as a consumer to expect a $50 to $100 delivery fee for this type of product.
However, it’s worth mentioning that in 2018, free delivery was an advantage sought after by more than 85% of consumers during the Holiday period. Thus, consider this tactic with parsimony.
Discounts for Bulk or Set Purchases
The final technique consists of offering a discount on the delivery cost with the purchase of a set or products purchased in bulk. Similar to the free delivery with a minimum purchase amount, this option has the advantage of helping you boost sales of a specific product.
You could benefit from the enthusiasm generated around one of your “loss leader” products (product at a low price / sold at a loss to increase the visibility of your brand) to stimulate sales on a complementary and more profitable product.
Imagine that your “loss leader” product is a small shoe polish container that accompanies the shoes that you sell. A bulk purchase discount would be to give your customers free shipping if they buy two small polish containers along with their shoes. Rather than paying for the delivery, why not give your mom a present? Do you see where I’m going with this? 😉
Delivery fees are an interesting way to differentiate yourself from your competitors and to incite your customers to buy.
Unfortunately, adopting a unique online delivery strategy for your e-commerce business isn’t easy. If it was easy, everyone would be doing it!
That’s exactly why you shouldn’t be afraid to test different techniques and ways to present your delivery fees. You will be able to measure their impact on sales, your cross-sells, and your average basket.
Analyze your data, test, retest and your results will surely improve! 😉
On that note, happy selling!