Monday, June 11, 2001

Online E-commerce Hurt by Shipping & Handling Charges

Jupiter Media Metrix, a global leader in Internet and new technology analysis and measurement, today reports that while shipping and handling (S&H) charges have dissuaded 63 percent of consumers from completing online purchases, nearly half (45 percent) of retailers say they are losing money on S&H costs. New Jupiter retail infrastructure research released today reveals that companies must gain their customers' trust regarding S&H charges because the majority of consumers are looking at these costs before making purchases. To minimize both customers' distrust and merchants' risk, Jupiter analysts advise retailers to view S&H charges as a break-even proposition and to base S&H charges on the weight of packages, not on order size.

"The latest Jupiter research suggests that consumers are wiser to the true costs of shipping than retailers think. Consumers who have mailed packages via UPS, the USPS, or some other shipper, are well aware of the fact that shipping costs are driven by weight, rather than by the value of the package," said Ken Cassar, Jupiter senior analyst. "Online retailers must begin basing their shipping charges on weight and distance because that is what customers are familiar with. Retailers that believe that they're simplifying matters for their customers by charging based on the dollar size of an order or on the number of items in the order are making a mistake that may undermine the relationship that they're trying to build."

Key findings and forward-looking analysis from the latest Jupiter retail infrastructure research include the following:

- According to a Jupiter Consumer Survey, 46 percent of consumers intuitively believe that shipping costs should be based on the weight of packages, while only 10 percent believe that price and order size should drive S&H costs. A Jupiter WebTrack Survey of the top 50 Media Metrix online retailers, however, reveals that 54 percent of retailers base shipping costs on order size, while only 30 percent base costs on weight.

- Jupiter analysts have found that companies that charge on any basis other than weight risk either losing money or robbing their customers. For example, Pets.com went out of business because it subsidized the high costs of shipping pet food. On the other hand, Jupiter analysts cite CDNow—which charges $2.99 in S&H for the first CD and 99 cents for every additional CD—as a company that has used a dangerous per-item based pricing model. A purchase of 200 copies of Journey's Greatest Hits would cost a customer $200 in S&H, while CDNow would only incur about $28 in shipping cost.

- A Jupiter Consumer Survey reveals that 73 percent of consumers evaluate the total price of products, including S&H, before making an online purchase. According to Jupiter analysts, companies that are profiting on S&H run the risk of increasing distrust among consumers.

"Across online retail and catalog, there is an even split between retailers that make money on S&H and those that lose money on S&H. As profitability becomes increasingly important, it is perfectly understandable that retailers would seek new sources of profit, including S&H charges," Cassar said. "However, the long-term interest of the retailer is best served if its customers trust it. The latest Jupiter research shows that S&H is not perceived as a product—but as a necessary evil."