“Free Shipping” Is Anything but Free
Logistics Industry January 26, 2017
Consumers demand and expect it, and in the highly competitive online retail environment, retailers feel compelled to offer it: free shipping. With the hypercompetitive festive season and postseason in play, retailers are under pressure to sell and move inventory. Failing to include free shipping and return options to customers can scuttle big sales during the most lucrative consumer market time of the year.
But how is it possible for the notion of free shipping to be the cost of doing business nowadays? And can retailers adequately absorb the costs of so-called free shipping? In the shadow of e-commerce behemoth Amazon, the fierce nature of bricks-and-mortar retailer competition, and the ubiquity of free shipping, Canadian retailers can ill-afford to forego offering their customers free parcel delivery services. According to PricewaterhouseCooper’s “Canadian Total Retail 2016” survey, the price of a product or service is the No. 1 factor that influences consumer spending decisions (66 per cent). The availability of a product (43 per cent) and a good return policy (32 per cent) ranked second and third respectively.
On the one hand, offering customers free shipping for online purchases can spike sales, increase an order’s value, spur customer loyalty, and in turn, grow your revenue. On the other hand, the cost of fuel and packaging materials, paying your workforce, and so on is anything but free.
The Real Cost of Free Shipping
If planned for in advance effectively, offering your customers free shipping promotions or as a seasonal option may be worthwhile. But you need to do your homework first. How well do you know your customer demographic? What portion of them will only complete a sale provided free shipping is provided? Is it wise to offer free shipping options to your customers during the holiday season and other special shopping days such as Black Friday when delivery companies may be unable to clarify exactly when a shipment will arrive at its destination? For small, independent retailers, offering free shipping as a matter of course may not be sustainable.
When e-commerce was still in its infancy, free shipping was offered by some online retailers as a temporary measure to develop and generate business. But as a comScore study discovered, free shipping is the most important factor driving online transactions and customer satisfaction. Interestingly, the same report found consumers are willing to pay a shipping premium to receive a purchase quickly or on a specific date.
The Intersection of Technology and Efficient Logistics
Whether online or offline, the importance of omnichannel logistics for retailers cannot be understated. Fuelled by technology, driven by changing consumer spending habits, finding the right economic formula to woo fickle consumers with free shipping and returning policies can be had by digitizing supply chain management and inventory tracking.
While e-commerce is a vital component of the B2C landscape, it’s worth noting a mere 2 per cent of total Canadian retail sales in the first nine months of 2016 were e-commerce transactions, according to a report based on data from Statistics Canada. Ergo, it heightens the criticality of smart distribution and supply chain management functions ranging from internet fulfillment, reverse logistics, and electronic data interchange to maintain a full-360 view of your inventory levels and shipping 24/7.
Do you need a 3PL partner to help you transform your supply chain to meet customer demand efficiently now and in the future? We can help. Canadian retailers big and small have relied on our services since 1950. Tell us what your supply chain and transportation issues are, and we’ll provide you with a cost-effective and forward-looking solution.