Report: Shipping & Handling Costs Drive Away E-Shoppers

While many e-tailers have scaled back on promotional offerings such as free shipping in recentmonths to cut costs, a study released Monday by Jupiter Media Metrix said that the return of paid shipping is driving away Web shoppers.

According to the survey, almost two-thirds of consumers have been deterredfrom completing online purchases because of shipping and handlingcharges. At the same time, the New York City-based research firm said 45percent of online and catalog merchants reported losing money on shipping and handling.

Jupiter cautioned that companies looking to profit from order fulfillment run the risk of sparking customer distrust becausethree-quarters of Web shoppers factor in shipping costs before conducting an online transaction.

“As profitability becomes increasingly important, it is perfectlyunderstandable that retailers would seek new sources of profit, includingS&H charges,” said Jupiter senior analyst Ken Cassar. “However, thelong-term interest of the retailer is best served if its customers trustit.”

Cassar added: “S&H is not perceived as a product — but as a necessary evil.”

Balancing Act

To minimize customer misgivings and merchant risk, Jupiteradvised retailers to regard shipping and handling charges as a “breakeven proposition.” Moreover, the study said e-tailers need to revamp the methodsby which they calculate these charges.

Instead of basing costs on order size, merchants should determine chargesaccording to the weight of the package and the distance it must be shipped.Currently, 54 percent of retailers base shipping costs on order size, whileonly 30 percent base costs on weight, according to Jupiter.

“Retailers that believe that they’re simplifying matters for their customersby charging based upon the dollar size of the order or on the number ofitems in an order are making a mistake that may undermine the relationshipthat they’re trying to build,” said Cassar.

Weight Watching

According to those surveyed by Jupiter for the report, roughly 46 percent ofconsumers said shipping costs should be based on the weight or packages,while only 10 percent said order size should drive those charges.

“Consumers are wiser to the true costs of shipping than retailers think,”said Cassar.

According to Cassar, shoppers who have mailed packages via United Parcel Service (UPS), the U.S. Postal Service or someother shipper, “are well aware of the fact that shipping costs are driven byweight, rather than by the value of the package.”

Doing the Math

In fact, Jupiter said companies that charge on any basis other than weight”risk either losing money or robbing their customers.”

For example, the report said that Pets.com was forced out of business in partbecause it subsidized the high costs of shipping pet food instead of passing those costs on to its customers.

On the other hand, Jupiter cited CDNow.com — which charges US$2.99 dollars inshipping and handling for the first compact disc sold and 99 cents for everyadditional CD — as a company that has used a “dangerous” per-item basedpricing model. For example, a purchase of 200 copies of”Journey’s Greatest Hits” (Jupiter’s example) would cost a customer over $200 for shipping and handling, while CDNow would incur only about $28 in actual shipping costs.

To compile data for its report, Jupiter surveyed 2,271 online consumers andmeasured the Web sites of 50 leading e-tailers.

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