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Overview
Online shopping is finding its way into more and more homes every day. People
are jumping into all kinds of "dot-com" shopping environments from small personal sites
to huge corporate sites. As part of that online shopping experience, one of the most
confusing, misunderstood and overlooked aspects is the shipping charge generated during
checkout. Public opinion and understanding of shipping charges runs the gambit from
shipping charges being completely disregarded to the belief that all shipping charges
are evil and should be free.
Shipping is not only difficult for consumers, but is also one of the most
difficult functions to setup for website owners and online retailers. Or I should say,
it is difficult if the retailer cares about providing a fair and conscientious shipping
system. Anything can be done easily if is done with minimal thought. Good shipping
systems require a LOT of thought.
With a little basic understanding of how the various systems work you will find
that you can drastically increase your shipping cost efficiency and save a lot of money.
If online shopping was going to be a one-shot experience for you, then little of what I
am offering below would be of much consequence. But chances are, once you discover how
easy and fun online shopping can be, you are going to want to know how to make the most
out of the experience.
The purpose of this article is to shed a bit of light on the various systems
and show how you the consumer can make the best use of your shopping and shipping dollars
within those systems.
The Basics
As a consumer, there is one single concept that will be the most
help in getting the most from your online shopping dollars. The concept is; "Your goal
is to pay the least amount for each item you are shipping, not
necessarily the least amount of shipping overall". That may at first seem like a strange
way to look at it, but this really is a case where a lower bottom line is not always better.
To put it another way; "The more you buy at one time, the more efficient is the shipping cost."
So, how do you take advantage of this concept? By asking yourself two questions
each time you shop online;
1) "How much am I paying to ship each item?"
2) "What do I have to do to reduce the shipping cost for each item?"
The answer to question 1 is easy. Just divide the shipping cost by the number
of items in the order. The answer to question 2 is what this article is all about and
varies according to the shipping system being used.
Let’s take a simple case as an example. For the example we’ll use purchase bracket
shipping. We’ll talk about the other shipping types later.
Example 1: Let’s say you add one "consumable widget" to the shopping cart for $1.95
and then head to the checkout system. The website you are using has a purchase bracket
based shipping system and your purchase falls into the "$0 to $9.95" bracket, and the
shipping charge for that bracket is $3.49. So if you ask yourself question 1 above, the
answer is $3.49 per item, or 179% of the item cost. If you were buying a flat panel TV
for $1,000 and the shipping charge was $1,790, then the inefficiency would be obvious.
It’s not so obvious on smaller items, but still just as inefficient.
So now, on to question 2. With a little thought we can see that in the above
bracket system you can buy up to $9.95 in products and still pay only $3.49 for shipping.
So how do you increase the efficiency of your purchase? That’s easy. Divide the $9.95
bracket maximum by the $1.95 widget cost and you’ll find that you can buy five widgets and
still pay the same $3.49 for shipping which is only 69.8 cents per item or 36% of the item
cost instead of the original 179%. Much more efficient, yes? That flat panel TV shipping
cost we talked about above just came down from $1,790 to $360; something anyone would
consider a massive savings.
To look at it from a "total spent per item" viewpoint, buying one widget means
that you spent $5.44 for each widget, while at five widgets in one purchase you spent
only $2.65 for each widget. That’s less than half the cost per widget.
That’s really all there is to it. It’s simply applying a little forethought on
the shipping costs instead of concentrating strictly on the purchase total.
Let’s look at another example, this time using weight based shipping.
Example 2: Let’s say you add the same consumable widget to the shopping cart for
$1.95, but the website you are using has implemented weight based shipping. In weight
based shipping there is normally a behind-the-scenes realtime lookup of the shipping
rate with the US Postal System or United Parcel, plus the addition of a handling charge.
For the website you are using we’ll say that the shipping charge for one widget comes
to $3.09. So if you ask yourself question 1 above, the answer is $3.09 per item, or 158%
of the item cost. A little better than example 1, but still inefficient.
So now, on to question 2. With weight based systems the shipping cost increases
gradually as the total weight of the items shipped increases. The weight of one widget
is small compared to the overall weight of the widget(s) and the packing materials so
as we increase the number of widgets the percentage of total weight increase gets smaller
and smaller. That means that each additional widget shipped adds less and less cost each
time. So to follow the numbers in example 1, if you ship five widgets instead of one,
the shipping only goes up to $4.11 which is only 82 cents per item or 42% of the item
cost instead of 158%. Again, much more efficient. You can also see that if you continue
to add more widgets, each widget costs successively less to ship.
To look at this example from a "total spent per item" viewpoint, buying one
widget means that you spent $5.04 for each widget, while at five widgets in one purchase
you spent only $2.77 for each widget. That’s almost half the cost per widget and again
the result is similar to example 1 even though the shipping system is completely different.
So how do you accomplish all this analysis without inadvertently committing to
a purchase? Most all websites have a page that details the shipping cost structure used
on the site. Look for a policies page, or a shipping terms page, or an overall terms and
conditions page. If the site does not have such details published, then you can use the
shopping cart itself to estimate the shipping. Just add items to the cart and look for
a button that says, "Estimate Shipping". It may ask for a zip code to complete the
estimate. Keep changing the quantity and re-estimate the shipping to see the changes in
rates. If there is no estimate button, then follow the checkout process until the
shipping amount is displayed. Carts normally ask you to confirm the purchase after all
amounts have been displayed. To try a different quantity, back up in the checkout process
until you can change the quantity and then go forward again. That should give you the
numbers without forcing a purchase.
Allow me to anticipate your next question, namely; "Why wouldn’t free shipping
be the most cost effective of all?" The answer to that is; "Sometimes it is … and
sometimes it isn’t." That brings us to the next basic concept discussed in the following
topic.
Free Shipping and When You May Not Want It
I hear you asking, "Why would I ever not want free shipping?" The answer
is pretty straight forward. Generally speaking, if the website offers free shipping for
every single purchase, then watch out. Yes, I hear the next question, "How is that
applicable if I am not paying anything for shipping?" Therein lies the catch. Actually,
you are paying for shipping. You just don’t see it because the shipping
is now buried in the cost of each item and as such you no longer have any control over
it, nor can you do anything to minimize the shipping cost.
Online merchants are not in business to give away products and services. Like
every other business they are in business to make a profit. If a website offers free
shipping across the board for all purchases, then they have simply moved the cost of
doing business completely into the product prices. And when they do that they will most
likely calculate and add the shipping costs based on a purchase that is assumed to be
at or near the worst case, namely a single item purchase. Therefore, given our examples
above, is it likely that you will find a website offering the same widget with free
shipping for the same $1.95 per widget? Not really. It costs what it costs to ship
regardless of what the merchant charges so will we see a merchant ship one widget for
$1.95 when it costs them $3.49 to ship it? Not on your life. Instead you will most likely
see that same widget offered for $4.95 with free shipping.
The bottom line for this type shipping system is that if you buy one item with
free shipping then you have also paid the shipping for one item within the price. If you
buy ten items with free shipping then you have just paid ten times the single item
shipping cost. Although the allure of free shipping may be attractive, when it is offered
for all purchases it is the least efficient shipping system of all.
Free Shipping and When You DO Want It
So when is free shipping a good thing? That answer is also straight forward.
Free shipping is a good thing when it is offered for total purchases above a given
level. An example of this would be a website that offers something like "Free Shipping
for Purchases Over $100." The threshold for free shipping will vary from one merchant
to the next, and it may vary during promotional times, but given a fairly high threshold,
the indication is the same. A merchant who offers free shipping over a relatively high
threshold is showing you that they are primarily vested in covering their shipping costs
in a visible manner that can be used with varying efficiency, and it also indicates that
the merchant is willing to offer what amounts to a significant discount on your purchase
if you buy over the threshold amount. The discount is the amount of the saved shipping
charge. They figure that if you are buying at that level then they can afford a little
loss of overall profit.
So how do you take advantage of this system and increase the efficiency of your
shopping? The same way as in the examples above. Buy more items at the same time. But
in this case there is an added option for savings. If you find that your purchase is
approaching the threshold for free shipping, then by all means, go ahead and add products
to exceed the threshold. That means that you get the most efficiency for your shipping
and you end up paying exactly the marked price for the item and no more.
Are there any times when threshold based free shipping may not be a good thing?
Certainly. If the threshold is too low, such as with an offer like "Free Shipping for
Purchases Over $20", then beware. That tells you that the merchant expects a very large
portion of their shipments to be free of shipping charge. That means that the merchant
must create a split shipping system that covers the shipping costs in both the item
prices and the shipping charges on low end purchases. This can be a nightmare for both
consumers and merchants to figure out and the math rarely comes out in favor of the
consumer.
So to recap, the higher the free shipping threshold is, the more the merchant
is vested in a fair and visible shipping system, while the lower the threshold is, the
more the merchant is vested in a less fair and visible shipping system. When the threshold
becomes really low, then the merchant is basically the same as when free shipping is
offered on everything, except now the merchant has added more shipping charge on top of
the charges embedded in the item when the threshold is not met.
Summary
The bottom line of the above examples is that it is more efficient, and therefore
less expensive in the long run, to focus on the per item total cost (item plus shipping)
than it is to focus on the total outlay of the purchase at hand. It is also true that
although the examples used one specific product cost to illustrate the concept, a similar
benefit is available with multiple different products and costs purchased at the same time.
Generally speaking, the more you buy at once, the more efficient the shipping cost is per
item, and the less you pay overall per item.
We have also seen that free shipping is not necessarily free or even cost
effective. It really depends on the website and how they are offering the free shipping.
I hope that this article has helped you to see how your online
shopping experience can be improved and made more cost effective. It’s always more fun
to get more stuff for less money.
Happy shopping!
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