“Online stores lose money on free shipping”

by Ecommerce News. About Logistics with tags , . 8,404 views.

Free shipping is often used as a marketing tool to lure consumers into buying at that particular store. But when an online store offers free shipping, online shoppers often have less delivery alternatives to choose from. And, says Steffen Pasgaard of EDI-Soft, online retailers lose both customers and revenue when they offer free shipping.

Whenever an online store offers free shipping, it’s almost always valid on all orders or on orders exceeding a certain amount (“Free shipping on orders over €25!“). This is not only to satisfy consumers, it’s also because online retailers are experiencing challenges with calculating the exact shipping price on every order in the shop. In a way, online retailers accept the fact they don’t have full control over shipping costs and thereby base them on a gut feeling.

According to Steffen Pasgaard, Vice President at Nordic software company EDI-Soft, shipping costs represent about 6% of a company’s turnover, and he wonders why such a huge amount in the financial statement is based on a gut feeling.

Consumers want several delivery alternatives
“I think online retailers accept the economic loss in providing free shipping, because they don’t know the tools, which can calculate individual shipping prices based on the customers shopping cart and shipping address and thereby show several delivery alternatives”, Pasgaard explains. He says several delivery alternatives are exactly what consumers want, and it is something companies should consider offering instead of, or in combination with, free shipping.

There are many reasons for paying extra for delivery in order to decide how and when the parcel will be delivered. For example, when you forgot someone’s birthday, a wedding day is near, there’s an urgent case or even a emergencie and you need something as quick as possible. However, a consumer survey from Danish ecommerce association FDIH shows that lack of shipping alternatives in online stores often is the reason that shoppers leave those stores. This way online retailers miss out on revenue.

Delivery to a private address is still the most used delivery method in Denmark, but pick-up points are getting more and more popular. FDIH’s yearly ecommerce analysis shows, that the number of deliveries to pick up shops have increased by 50% from 2013 to 2014. This also stresses the demand for flexible delivery.

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