DMers Urged to Peg Shipping Costs to StudyCAMBRIDGE, MA -- Performing a fulfillment cost study can help direct marketers, given recent class-action lawsuits alleging deceptive shipping and handling charges, George S. Isaacson said yesterday at the New England Mail Order Association spring conference here.
"Most direct marketers, I think, do not, in fact, conduct a fulfillment cost study that precedes setting their shipping and handling charge," said Isaacson, a senior partner at Brann & Isaacson, Lewiston, ME.
They either charge what the market will bear or look at what a competitor is doing. What is not a common practice, he said, is to calculate the cost to have a close correlation between the cost and the charge that is being imposed.
Some direct marketing consultants tell companies to increase shipping and handling charges as an additional profit center, he said.
He then made the connection between this and class-action lawsuits.
"Class-action lawsuits are not driven by the single plaintiff who claims that he should have been charged $4.25 instead of $6.95," he said. "These lawsuits are not being promoted by somebody who believes they're out a couple of bucks. They're being promoted by the lawyers ... who go out and find some stooge who's willing to be the front man in these lawsuits."
He said there are law firms that specialize in class-action suits.
"Generally, these lawsuits are brought under state deceptive trade practice statutes, state consumer fraud statutes, [which] are very powerful," he said. As for proof elements associated with winning one of these cases, "you don't even need to show that the plaintiff was actually confused or deceived, simply that your practice would have a tendency or likelihood to cause confusion or deception.
"Many [of these lawsuits] provide for treble damages. And ... the plaintiff gets to recover attorney's fees as well."
One reason these cases are settled is that the mechanics of a class-action lawsuit are bad from the start, he said.
"Notice has to be provided to all of the prospective members of the class that they can either choose to participate by doing nothing, or opt out," he said. "If the plaintiff is willing to front the cost, you have to provide your mailing list ... under court supervision ... [and send notice saying], 'You may have been deceived by this catalog company and if you choose to obtain whatever damage recovery may ultimately result in this lawsuit, do nothing.' That's a great mailing to your customer base!
"The jury is going to be consumers. And this is going to be a jury in a jurisdiction that was chosen by the plaintiff. It's not going to be in your hometown."
How can direct marketers protect themselves?
"The best practice is to have a fulfillment cost study that you can turn to that demonstrates your justification for the charge that you impose," he said.
A plaintiff could claim that the term "shipping" refers only to the common carrier cost, he said. Then he added that using the term " 'shipping and handling' gives you some additional swing room because I think you can legitimately say there are a host of associated fulfillment costs [such as] packaging materials, outbound labor costs, depreciation of equipment, etc."