Shipping Costs – A Sales Barrier?

Free shipping has long been touted as a sales strategy for eCommerce businesses. Industry research would suggest that offering customers free shipping makes it more likely that they will make a purchase, compared to the same item that does not include shipping.

Now, there is of course no such thing as ‘free shipping’. Shipping costs are always factored into the overall price. But in terms of retail psychology, an all-inclusive price (in some cases even a more expensive one) tends to be more attractive to consumers. If item A retails for £15 plus £5 shipping, and item B retails for £20 with free shipping, best practice would dictate that the use of item B (or variant B) would see greater success than item (or variant) A.

What we are now starting to see emerge is not a complete reversal of this trend, but a change in direction from businesses that are not consumer driven.

 

Offsetting Rising Operational Costs

One of the main drivers behind this change in approach to ‘free shipping’ relates to rising operational costs. Item returns, such as swapping a pair of shoes ordered in the wrong size, cost the eCommerce industry £60 billion annually.

Not only has the cost of shipping increased, but because of the surge in eCommerce sales during the pandemic, the volume of items being returned has increased significantly. Retailers are beginning to clamp down on unchecked shipping, despite going against the old industry premise of minimising such barriers to sale. Fashion retailer Boohoo joined a growing list of leading brands in reinstating their shipping costs earlier this month but they also went one step further and introduced a return fee per parcel being sent back.

The overall approach was a bold one in every aspect of the rollout but there was no public statement, more a quiet reinstating of a paid shipping policy introduced overnight to customers along with the new return cost, that is deducted from the refund amount. As a result, angry followers of the brand took to social media to share their outrage and frustrations about what they felt was an unfair cost burden to them. As one customer put it “it’s not like we can try the clothes on first”. Stock prices for Boohoo hit record lows after the rollout of this new policy.

 

Turning Customers Into Subscribers

What isn’t immediately obvious here is the opportunity for turning loyal customers into long-term subscribers. Through loyalty schemes that essentially upsell customers into becoming subscribers, eCommerce retailers have begun learning from the likes of Amazon Prime for gaining more high-sales volume customers. By introducing ‘Premier’ level account status, which is paid for as a monthly or annual subscription by customers, they can then unlock access to free shipping. It is something that retailers like ASOS have had available for a while.

At Boohoo, Premier customers pay £12.99 per year for unlimited next-day delivery and free returns. So loyal customers are being turned into committed subscribers and converted from shipping-cost adverse to prioritising top-tier loyalty status. This in theory should make them the first choice when someone is looking for something they are likely to sell. Why would you shop around when you know you get the certainty of free delivery and the security of knowing the return will be free if needed.

 

So Which Is Best?

The times and tides of free shipping for customers are changing. This change is business-led and not consumer-led. User research would continue to suggest that free shipping is an attractive feature for eCommerce retailers as well as providing a lower barrier to sales. But the reality is, retailers are grappling with rising shipping costs and the need to provide stakeholder returns.

The pressure is growing to cut the costs from the £60 billion annual price tag. So, if businesses are considering scrapping their free returns – can it be managed in a positive way? The short answer is ‘yes’. It is possible to take this challenge and turn it into an opportunity to upsell loyal customers into a subscription service model or even turn the experience of having to return products on its head, as we talked about in a previous post. What we have seen emerge over time from the likes of Amazon into Amazon Prime is rubbing off in further reaches of the eCommerce world. Fashion brands such as Zara and Boohoo have jumped on the bandwagon and are the ones to watch in this space for how they handle the transition.