Forty-five percent of online retailers are losing money on shipping and handling costs, while another 45 percent are making money on them, according to a report released yesterday by Jupiter Media Metrix. The remaining 10 percent — those who break even on shipping charges — take the best approach, according to the study, which incorporated results from three surveys.
According to Jupiter, companies need to gain their customers' trust regarding shipping and handling charges because the majority of consumers look at those costs before making purchases. To minimize both customer distrust and merchant risk, Jupiter analysts are advising retailers to view shipping and handling charges as a break-even proposition and to base the charges on package weight rather than order size.
“The … research suggests that consumers are wiser to the true costs of shipping than retailers think,” said Ken Cassar, senior analyst at Jupiter. “Consumers who have mailed packages via UPS, the [U.S. Postal Service] or some other shipper are well aware of the fact that shipping costs are driven by weight rather than by the value of the package. Online retailers must begin basing their shipping charges on weight and distance because that is what they are familiar with.”
Cassar also said retailers that think they are simplifying matters for customers by charging based on the dollar amount of the order or on the number of items in an order are “making a mistake that may undermine the relationship that they're trying to build.”
The report found that 46 percent of consumers intuitively think that shipping costs should be based on package weight, while only 10 percent think that price and order size should drive those costs. However, the report found that 54 percent of retailers base shipping costs on order size, while only 30 percent base those costs on weight.
Jupiter found that companies that charge on any basis other than weight risk either losing money or overcharging their customers. For example, Pets.com went out of business because it subsidized the high costs of shipping pet food. On the other hand, Jupiter analysts cite CDNow — which charges $2.99 for shipping and handling for the first CD and 99 cents for every additional CD — as a company that has used a dangerous per-item pricing model.
In addition, 73 percent of consumers evaluate the total price of products, including shipping and handling charges, before making an online purchase, according to the report.
