Naturally, it’s been a great practice for online retailers and e-commerce brands to offer free shipping because it decreases cart abandonment at checkout while spurring customer loyalty and increasing satisfaction.
In turn, companies spread the cost of shipping into their product prices, rather than relying on additional shipping charges.
Win-win, right?
Not necessarily.
A number of recent reports show that companies more often than not lose in this scenario, particularly where it hurts: their bottom line!
In reality, it seems that there are two primary reasons for this disconnect:
- Accounting for Cost of Goods Sold (COGS) is difficult and businesses tend to underestimate the full per-package expenses, including the accessorials and surcharges carriers like UPS and FedEx add to shipping rates after packages are manifested. This challenge isn’t particularly unique to retailers, by the way.
- Along with “free shipping” also comes “free returns.” While great for the customer satisfaction, the full cost of customer return habits aren’t effectively accounted for.
A medium-sized retailer in virtually any industry can lose $200,000 in profit every week because of returns spurred by free shipping promotions. This is supported through evidence and according to researchers, including Dartmouth University’s Scott Neslin.
The good news: there are solutions that can help your company be a free-shipping winner!
Know The Real Costs of Goods Sold!
Crunching the numbers is a critical first step in knowing what each package you send, and potentially see returned, will cost. A parcel intelligence platform, such as Refund Logistics’ Parcel Intelligence Platform, offers key performance indicators and shipping profile data to make this manageable.
Understand Return Trends to Create a Strategy
While great for customer satisfaction, offering free shipping may actually be more expensive than you think. In 2006, a study showed that 5.6% of online purchases were returned by customers. By 2013, the percentage had increased to an alarming 37%! Acknowledging this trend, it is critical for retailers to devise a return strategy based on their shoppers’ return behaviors as each business’ experience is different.
The return trend is so widely acknowledged that, one carrier is trying to remedy these losses for their customers—enter FedEx Returns Technology.
Recognizing the significant effect returns have on profits, FedEx launched Returns Technology in March 2018.
“Returns have rapidly evolved into a critical factor, second only to cost, in satisfying today’s e-commerce customers,” said Ryan Kelly, Senior Vice-President of FedEx Supply Chain. “FedEx Returns Technology bridges the gap between digital and physical, allowing merchants to define a returns strategy that works for their business model and for their customers.”
A returns strategy that works gives retailers and e-commerce companies a way to offer free shipping – raking in the profits it guarantees – without increasing returns.
The end game of free shipping promos is one where companies strategically make calls using new innovations and technology. One where customers still get that rush of scoring a great deal. And properly employing a returns strategy to minimize losses and bolster customer satisfaction is the win-win scenario we want.
Are you ready to start saving money on your businesses’ shipping strategy? Contact Refund Logistics today to stop leaving money on the table and your hard-earned margins using our 100% contingency business model!
Call Refund Logistics today to explore how we can start saving you money!