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E-tailers Struggle to Get Handle on Shipping Fees

14 Jun, 2001 By: Hive News

E-tailers have always wrestled silently with shipping and handling charges and how best to apply them without turning off consumers.

How and where in the transaction should such charges be mentioned? Should merchant be making money on shipping? Or should shipping be free? These are not problems that brick-and- mortar retailers have to face, but they are everyday concerns faced by Internet merchant in search of profitability as well as customer satisfaction.

The free-shipping policies of the venture capital-fed dot-com era have fallen by the wayside, as e-tailers today search for the rightbalance of shipping and handling fees that fits both the consumer and merchant's budget.

"There is an awful lot of anxiety out there about this issue," Ken Cassar, an analyst with Internet consulting firm Jupiter Media Metrix, recently told the New York Times.

Cassar said that in a recent survey of online retailers, 45% said they were making money on shipping and handling, while an equal share were losing money. The remaining 10%, who break even on these charges, have taken the best approach, Cassar said.

Online merchants can't afford to lose money on shipping, he added, but they also can't afford to risk losing customers. "Shipping and handling is not a product thatwarrants a markup, and consumers know that," he told the Times. "Everyone has mailed a package to someone,so everyone knows the costs, and they know when they're being taken advantage of."

Even if e-tailers pass along shipping costs to consumers,it's not that simple, consultants say, because shipping costs can't always be calculated per-item based on the total weight of a package, and shoppers often buy more than one item at a time, which affects costs. Many e-tailers don't know what an order costs to ship until the customer adds up the total purchase and submits a shipping address.

Some sites, such as Amazon.com, provide an up-front link to a schedule of shipping charges, by weight. But customers tend not to think about the weight of their purchases while shopping, only when finalizing their order, which is why many online retailers charge on the basis of an order's cost.

Clothing company Lands' End sells roughly 20% of itsmerchandise over the Web, says the Times, and bases its shipping charges on the amount customers spend. The lowest S&H charge is $4 for two-day shipping on orders up to $25, and the highest is $12 for orders of $150 or more. Because package weights vary, the company will lose or make a small amount of money on individual orders.

"But when we average it out, we're essentially just covering our costs," Bill Bass, the senior vp at Lands' End overseeing the company's online division, told the Times. "Our philosophy is that we're going to charge people what it costs us to ship and handle the product, and we're going to be very upfront about what that is."

CDNow, an online music retailing unit of Bertelsmann, is also straightforward about its charges, but has a somewhat different philosophy from Lands' End, said the Times. The company lists its shipping charges prominently in the help section of the Web site, noting that customers pay $3 for the first item and $1 for additional items. In effect, shipping is another source of profit.

Samantha Liss, CDNow's marketing vp, told the Times that those fees bring the company roughly the same profit margin, 15 to 20%, that the site makes on the sale of each CD sale. "We really don't make any significant sum on this," Liss said. "It's in line with other Internet music stores out there.

"For the most part, our customers don't have a negative reaction to theshipping charges. Some people do say it's a hurdle, but they're probably the type who aren't likely to have products shipped to them in general. It's not just CDNow."

About 20% of those who abandontransactions on-site say it's because of shipping charges. According to the Jupiter report, 63% of online buyers said high shipping andhandling charges deterred them from buying in the first place.

Some sites try to counteract that by offering a "free shipping" promotion for part of a month. Such a promotion can also be a response to a competitor offering free shipping on large purchases.Free shipping remains one of the best incentives for online shoppers, even more than product discounts, generating sales and, more importantly, return business, which is the goal of every e-tailer.

Every e-tailer has to determine their own S&H thresholds. Free shipping has sunk many an e-tailer's cyber business, so every merchant has to carefully determine what to charge and how to present those charges to customers, especially since shipping and handling charges can add up fast, shipping costs continue to rise, almost year to year -- and online consumers have thresholds, too.

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