Now that online sellers have mastered the art of offering nearly every product that consumers could want in an easy-to-use interface, the new frontier for the e-commerce industry is to figure out the last mile of online shopping – shipping.
Shoppers Expect Free Shipping
Let’s face up to some basic facts. Reams of research shows that online shoppers have an unwavering unwillingness to pay for shipping. A Morgan Stanley study shows that 62% of online shoppers consider free shipping as a necessary service all e-commerce companies should provide. 80% of respondents would even buy more if free shipping were provided.
While some e-commerce companies like Zappos have embraced the strategy and offer free shipping, no questions asked – others have gone the route of offering free shipping but with certain caveats. A popular answer to the free shipping conundrum is to offer free shipping above certain minimum purchase thresholds. From Amazon’s $35 minimum amount to Wayfair’s limit of purchases worth at least $49, free shipping is definitely not out of reach for the average shopper. The upside for retailers in this arrangement is that the allure of free shipping acts as a critical incentive for shoppers to buy more per outing, thereby nudging up the Average Order Value (AOV) for the store. A joint study by UPS and ComScore proves this point, with 58% of online shoppers admitting to have added items to their cart just to qualify for free shipping offers.
Brick and click retailers capitalize on their store locations to offer free shipping to their online shoppers in the form of Ship to Store options. The increased footfalls brought in by online customers walking in to pick up their items in store are further augmented by spur-of-the-moment purchases that make Ship to Store a winning proposition for physical retailers.
The Need for Speed
Quick deliveries are nearly as important as free shipping for online shoppers. The need for instant gratification that most of us have makes online shoppers an especially impatient lot. While older shoppers don’t mind waiting a few days for deliveries if they pay less in the bargain, Millennials – everyone’s new favorite target segment – want everything right now.
If you thought you could ignore the troublesome Millennial segment (or Gen Y, as they’re sometimes called); you’d be doing your business a huge disservice. Elite Daily discovered that unlike fickle generations before them Millennials have a streak of brand loyalty. Once they find a brand that resonates with their values, 60% remain loyal to it. Not only do they already form the largest chunk of working age adults in America, they also wield about $200 billion in buying power.
Many of these younger shoppers have grown up on the Amazon Prime model and are happy to pay an annual fee in return for free, two-day deliveries. The success of the Prime program recently prompted Walmart to announce their own shipping membership program. The other alternative that last minute shoppers have is that of paying a substantial shipping fee to get expedited deliveries within a day or two via Fedex or UPS.
Real World Challenges for Online Sellers
Even if customers desire fast shipping, simply throwing money at the problem is not always feasible. Remember how they’re also unwilling to loosen their purse strings for shipping while simultaneously expecting quick deliveries? Besides consumer attitudes, there are a number of other hurdles that stand in the way of offering a guaranteed immediate delivery timeline to online shoppers and actually making it happen. From an operational perspective, there are three major costs that lie ahead for any free or fast delivery programs you might want to offer.
- The Cost of Expedited Order Processing
Quicker order processing can mean getting more people in place to get sorting, packing, labelling and dispatch done faster than usual. More people obviously equals higher personnel costs.
- The Cost of Holding Inventory
In order to deliver quickly to customers living across the country (or globe, as the case may be) it becomes necessary to hold inventory across multiple warehouses. A large network of warehouses can be a huge expense, not something that most online retailers can afford. Then there’s the question of lost opportunities since all your cash is locked up inventory that may or may not sell. Inventory carrying costs can range between 20 to 30% of the value of the inventory you’re holding –something that can put a big dent into your final bottom line.
- Expedited Shipping Costs
If you cannot process orders quicker or dispatch them from nearby locations for customers, the most popular way of getting packages to recipients in time would be to ship via overnight carriers like UPS, Fedex. However, expedited shipping can be excruciatingly expensive, especially in high volume seasons like the holidays.
Cost Effective Alternatives for Quick and Low Priced Shipping
So what ARE your options when you want to ship fast, ship cheap and please your customers all at once?
Picking the Right Shipping Options
One way to control costs related to shipping would be to ensure that you use the optimum channel for shipping each order that comes in. Next day delivery orders don’t always have to be Fedex-ed. With a little judicious planning it’s possible to map each customer’s location against the locations of your inventory and figure out the cheapest way to get there.
An assured delivery date is something 62% of online shoppers cite as a must-have, as per the UPS and ComScore study quoted earlier. OrderStream’s SmartShipping module dynamically upgrades or downgrades shipping methods at an order level to ensure on-time delivery at the lowest possible rates. The service optimizes shipping options by taking into account a variety of factors including customer location, warehouse location, real-time transit updates, customer delivery time expectations and order processing times.
Take the example of a CommerceHub customer who saved $300,000 in delivery costs thanks to SmartShipping’s choice of shipping carriers. During business –as-usual periods, when speed is not a huge factor in deliveries, SmartShipping dynamically downgraded 78% of ground orders to regular postal insertion, saving the client 24% in shipping costs.
Distributed Warehousing for Everyone
If shipping carriers are one piece of the deliveries puzzle, warehouse locations are the other critical deciding factor. What if you could have your inventory distributed in warehouses from coast to coast without having to worry about how much it costs? CommerceHub’s FlexPoint solution offers sellers readymade partnerships with third party logistics providers (3PLs) that operate warehouses across the country. The distribution of your inventory closer to where customers are, means shorter delivery times and a superior user experience.
Want to know more about how shipping can transform online shopping for your customers? Contact us now and we’ll be happy to help!