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Putting an effective ecommerce shipping strategy in place is one of the most impactful steps you can take to grow your business online. While many brands start out in ecommerce by taking a simplistic approach to shipping –– like offering free shipping across the board or showing unmodified UPS or USPS rates –– the most successful merchants use strategic shipping options to differentiate themselves from their competition and increase margins.
Of course, while shipping can be a powerful point of differentiation for your brand, it’s important to make sure that your company can actually act on the strategy.
This requires coordination between multiple teams within your organization, all the way from your marketing team to your fulfillment team –– and several others in between. Establishing an ecommerce shipping strategy lets you ensure that everyone involved in this pipeline knows what’s going on and their part in the process.
Assemble the Team
Identifying the right people to help make this decision for your business is the first step. This requires that you bring into the conversation the right stakeholders within your organization.
Here’s a quick breakdown on how to think through the process and pull in the appropriate stakeholders.
Define The Goals for Your Shipping Strategy
Once you’ve identified the key teams in your company who will need to be involved in establishing your strategy, you need to define what you want to accomplish with your ecommerce shipping strategy.
There are many areas of focus here, but the most typical are these.
Your Ecommerce Shipping Solutions and Options
Once you’ve identified the right team and goals for your business it’s time to get down to the work of choosing a strategy that is going to work for your team to accomplish the goals you’ve set.
We’ll identify a number of available strategies here with the pros and cons for each. None of these are exclusive of one another and most successful business will implement several of these options to form a complete strategy for your unique scenario.
First and foremost, though, as the ecommerce manager or project owner for shipping strategies, you need to approach the business understanding key elements of the shipping industry. Here are the crucial considerations you must take into account.
Crucial Shipping Considerations
From the hundreds of surveys, polls, and studies published each year on ecommerce, one thing is clear: offering the right shipping rates and options to your customers is crucial to your success as a retailer.
Getting this piece right can make the difference between losing a customer if you charge too much and losing your shirt if you charge too little. And it’s not just cost that makes a difference. Offering the right shipping options to your customers at the right times plays a critical role in reducing cart abandonment and increasing revenue.
Taking full control of your shipping means that you can offer the lowest shipping rates possible, still cover your costs, and offer the options your customers want. Here’s a quick list on how to properly think through what you can offer, including when and why, to maximize sales and decrease costs.
The most important factors to consider when taking control of your shipping can be broken down into three areas:
- Product size and weight: What’s the difference in size and weight from your smallest, lightest SKUs to your largest, heaviest SKUs?
- Shipping destinations: Where are you shipping to –– domestic or international?
- Shipping options: What are the best shipping services or carriers for your unique needs?
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Product Size and Weight
The first of these, product size and weight, is often the easiest to get your head around and has the biggest impact on the approach you take.
If your products are relatively uniform, then going with a per-item, zone-based approach, where the shipping price varies by your customer’s location and not by product size or weight, works well.
This is also a great place to build easy to understand promotions like $10 shipping per order, $5 shipping per item or even free shipping over $50.
For retailers with varying sizes and weights among your product set, getting rates directly from a carrier like UPS, DHL, Australia Post or others is a great way to ensure the rates you’re offering to your customers are the best possible ones.
The important thing to focus on here is making sure your products have accurate weights and dimensions so that the rate you get back from a carrier is as accurate as possible. To do this, break your products into groups and focus on getting product weights and dimensions for the heaviest or largest 20% and smallest or lightest 20%. This will have the biggest effect on your shipping rates and offer the best return on investment.
Shipping destinations can be just as crucial as product dimensions and weight. Again, in a simpler scenario like domestic shipping, a flat-rate or free shipping option works well.
To step it up a bit, set rates based on zones. For example, if you’re located in New York, offer a cheaper rate for the mid-Atlantic region and increase the rate as you radiate out from there.
Note: Shipping internationally normally necessitates getting a rate straight from a carrier like the USPS, DHL or others. Rates can vary significantly even in neighboring countries and it’s difficult to build your own rates for these scenarios.
Managing your shipping options allows you to delight customers and keep costs in check. Look beyond the big-name carriers and you’ll find a world of opportunity to offer same-day delivery, next-day delivery or timely and cost-effective delivery for even the largest items.
In major cities, you’ll often find local delivery and courier companies that will deliver more quickly to your customers than the big carriers at very competitive rates. If you’re shipping especially large items or do a lot of large B2B shipments, using an LTL (Less Than Truckload) freight carrier becomes a necessity.
Local couriers often don’t offer a way to fetch rates in real time for shipments, but it can be worth your while to build up a table of rates based on number of items or weight in order to offer these options to your customers.
The important thing when looking at any alternate delivery option is to make sure that you control when and where it’s shown. If you’re based in Sydney, you probably don’t want to show your local delivery courier as an option for a customer from Paris. The same can be said for showing an LTL freight carrier as an option for someone who orders a single t-shirt.
Taking control of your shipping ensures that you aren’t leaving money on the table or risking your success by charging too little. Even small changes here can pay enormous dividends in cart conversion, controlling shipping costs, and delighting customers.
Now that you have all of this considered, you’re ready to face the gamut of questions and potential push back from other teams. Here are your shipping options and strategies available.
Free shipping may seem like the simplest strategy and it’s grown massively in popularity since Amazon introduced Free Shipping for orders over $25. The advantages of Free Shipping are that it’s easy to explain to customers, it responds to customer expectations and it has a positive effect on conversion rates for customers who make it to your checkout funnel.
Of course, free shipping may be free to your customers –– but not to you. You’ll still need to pay the carrier and you’ll have to make sure you’re making enough on each order to cover the associated shipping costs. This is why you’ll see that most companies (Amazon included) only offer free shipping over a certain price point and only on specific products.
If you choose to offer free shipping, it’s vitally important to understand its impact on your bottom line. Even if you’re making more sales, if you’re losing money on each one it’s of no benefit to your bottom line.
The most effective approach to free shipping is to only offer it for orders where you know you’re making enough on the sale to cover shipping and still make a profit. This means setting a free shipping order subtotal threshold that makes sense for your business and, maybe, excluding products that are too heavy or bulky for you to offer free shipping on.
We’ll dive more into exactly how it implement free shipping for your business later in this article, if that is the route your team chooses.
Flat Rate & Table Rate Shipping
One extremely effective way to avoid some of the challenges of Free Shipping is to go the flat rate or table-rate route. Flat rate shipping is something like $10 shipping regardless of order value (see, for example, Overstock.com who charge $2.95 to most locations in the United States).
Table-rate shipping is a bit more complex, but doesn’t have to be much more so. Customers in certain regions, like the United Kingdom, prefer table-rate shipping versus being charged a live rate. For example, a merchant with a warehouse in London might charge customers near the city a certain amount, say £5 per order, with rates going up to £10, £15, etc. as you get further away from the fulfillment center.
You might also charge based on the order subtotal ($10 for orders up to $50 in value, $5 for orders up to $100, and free for orders over $100). Alternately, you might charge a different rate for certain groups of products or set rates based on the order weight.
Live Rates from a Carrier
If the most important factor for you is to offer the best possible rate while still covering your costs, getting live rates in real-time directly from a carrier like UPS, FedEx or DHL may be the best way to go.
While it’s harder to use this approach as a promotional tool (the rates may vary significantly depending on what the customer orders and the distance from your warehouses to the customer), you can ensure that you’re offering the cheapest possible shipping option by charging your customer exactly what you’ll be charged by the carrier.
Especially if you’re in a market where many of your competitors are offering live rates, it may be important to do so. This means that for lightweight orders or customers located near your warehouses, you can often offer significantly cheaper shipping than your competition while still making sure your costs are covered.
Of course, it doesn’t have to be as simple as plugging into a carrier like UPS and showing exactly what UPS returns for each order. You can add a surcharge if you want the shipping charge to cover things like packaging and your cost of fulfillment. You can also discount the rate returned to be that much more competitive over others in your market.
Mixed and Alternative Strategies
While these three options are the most popular and frequently used, thinking outside the box and mixing and matching these approaches can be extremely effective. This allows you to balance your revenue needs with promotional opportunities.
For example, offer free standard shipping (with no delivery commitment or a range commitment like 5-10 business days for delivery) alongside other options like Expedited shipping (for example, 3-5 day delivery at a table rate based on order value) and live rate options for Second Day and Overnight delivery.
In addition to these most popular approaches, offering additional, less orthodox options can help you stand out from the crowd. For example, free in-store pickup can drive customers to your retail locations (resulting in additional traffic and sales at your brick and mortar locations). If you’re selling particularly large or heavy items, offering LTL freight delivery on your website can help keep costs down while making it easier for customers to place larger orders online.
The Holy Grail of a Profitable Ecommerce Shipping Strategy
There is no doubt about it, free shipping is the holy grail of online commerce. You only need to look at Amazon Prime to see this. Amazon net shipping costs were more than $1 billion per quarter in 2014. They chose to subsidize shipping heavily as part of their growth strategy –– very heavily in my opinion.
Pitney Bowes published their 2015 Holiday Shipping Survey in the last week and it makes for an interesting reading. Here are some of the more relevant and poignant points:
- 93% of consumers say shipping options are an important factor in their online shopping experience (up a massive 24% from 2014)
- 88% said that free shipping with 5-7 day delivery time is more attractive than paying a fee for 1-2 day faster delivery
- 3 in 5 consumers have increased their total spend in the past to qualify for free shipping
- 68% have used a free shipping coupon code
Given all of these data points, what’s interesting is that only 22% of merchants feature information about their shipping policy on their homepage. My advice –– go fix that. So, if 9 out of 10 of your customers are considering this, as the data suggests, then you need:
- To indicate current shipping promotions above the fold on your homepage
- A link on your homepage detailing your shipping policy, not just around pricing, but time in transit, returns policy and even the carriers you are using if possible
- Careful thought about what your shipping policy should be –– write it down and flush it out, make the numbers work
The Truth About Free Shipping
But, here is the issue: how exactly does a merchant make money in this scenario? Free shipping, particular in the U.S. and Australia is very hard to do –– and Amazon is proof that businesses need a pretty big financial reserve to make it work.
At ShipperHQ, we have dealt with merchants facing this conundrum for a number of years, and we have seen a number of solutions to the problem. We have assisted many thousands of merchants in their setup, so let me share with you my recommendations with you on how to tackle this issue.
Consider the Space in Which You Work
As a merchant, you need to think about your market sector, your competition and the space in which you play. You might not need free shipping. This is especially true in the B2B ecommerce space, where what might be more important is accurate dimensional based pricing.
If you have customers that are loyal to you, they will appreciate you passing on your negotiated rates to them and giving them the choice over urgency of delivery.
If you are competing based on product price, then it may be that you have no ability to absorb free shipping costs. It’s all about information accuracy, and using multiple carriers where required so you can offer the best and cheapest service.
Decide if Shipping is a Marketing Expense or COGS
This plays into my comments above. You need to decide whether shipping is part of your costs of goods sold, or whether it’s a marketing expense. Or, maybe it’s a combination of both. Do free shipping and related shipping promotions drive your sales up enough that you can justify it partly as a marketing expense?
Offer Free Shipping to Limited Regions
As a starter, I’d say in the U.S. you should limit free shipping to the U.S. 48 contiguous states. Alaska, Hawaii, Puerto Rico –– sorry you are out of luck. People in those places expect to pay extra for shipping.
APOs and PO Boxes are other areas for which you can switch off free shipping. If you take a look at Jet.com they follow this policy. Copy it.
Surcharge Your Expedited Rates
We know how this works. We go to a store advertising free shipping. We shop. Then, we get to checkout and find out it’s going to take 10 days to deliver. Amazon is the master of this. They will purposely hold the shipment back for a few days if its free –– and how frustrating is that!
The reasoning is that, by this point, we are committed to the sale. We’ll then think, “Oh, another $10 bucks I could get this faster.” This where your opportunity lies. Surcharge the expedited. There will be a segment of customers (especially as the holidays get closer) that will pay extra to get it faster. This surcharge can offset the free shipping you are offering other customers.
Take a Monthly View
Some merchants want to look at every single order and ensure they make a profit. In some cases that’s necessary. But I’d say in most cases, taking a monthly view is a better option.
You win some, you lose some. It’s an iterative process. You should understand your shipping rules and be able to correlate what’s happening with your charges against your own policy. At the end of the month –– are you happy with the results?
Show Delivery Time
People are becoming more and more impatient. And, more and more used to having readily available information. For example, I order a pushchair from Europe. Just when is it going to arrive? Having that estimated number of delivery days, or an expected delivery date, is becoming more important.
Once you have that, you can then have more leverage around upselling faster services. It’s my belief that offering “Next Day Delivery” with no actual information about whether that means tomorrow or next week will soon be a thing of the past. People are much less tolerant now, and they have greater choice to shop elsewhere.
Offer Free Shipping after Conditions Met
Try pushing up your minimum order price to qualify for free shipping. Does it affect sales? Maybe. Run an A/B test to see what the impact is.
You can advertise free shipping on your site, but qualify that it only applies on your small goods, a certain category or maybe you want to just offer it on your big ticket items.
We all love a promotion. Does it need to be free shipping? I don’t believe it always does. Maybe you publish list rates for UPS, but then offer 20% shipping discount to your returning customers via an email campaign. Or, just charge shipping on the highest value goods. For example, if I buy a kayak, I might pay shipping for that, but any other goods in the store ship for free. There are many, many combinations you can do here which give customer reward and encourage a higher dollar price.
Using a Shipping Solution
Now that you’ve started thinking about all of this, you may be wondering how you can achieve it. We have your ecommerce shipping solution: ShipperHQ.com. It’s the most advanced shipping rate calculator and manipulation platform in the world and is all about the rating.
Most shipping software out there will focus on that label, the last mile, first mile and all around shipping fulfillment. But they don’t care about the customer experience, and frankly they should because that’s where it all starts. At ShipperHQ, we do care. We put the merchant front and center. There is no right solution here –– its merchant specific. With knowledge and the right partner, you can achieve what you need for your store.
Shipping is pretty interesting, and it should be a big part of your online strategy. Remember though: it’s your cart, your shipping and your rules. Be agile, learn, improve and iterate.
A 4-Step Outline to an International Shipping Strategy
A third of online shoppers have purchased goods from another country. Those living in Australia, Canada and Russia are the most likely to buy internationally. In Asia and India –– two of the fastest growing markets for ecommerce, with YoY growth in the 30 or more percentile –– marketplaces similar to Amazon and eBay make it easy for international companies to test product market fit.
Now, how do you bring those customers back to your site for purchase once you’ve determined demand? Many online stores find shipping internationally nearly impossible given the regulations, rules and risks associated with each country.
To overcome that initial fear of international shipping, it is important to know what shipping options and fulfillment services provide low costs and risk.
Once you have a clear understanding of how international shipping works, researched the services that best fit your company and put an international shipping strategy in place, you will be able to open your online storefront to a global audience and break into the global market.
Shipping internationally opens your market to a potential three billion consumers. But, before you build your international shipping strategy you should determine if it is right for you. You don’t want to put time, effort and money into this if you aren’t going to come out with profit.
Here are a few things that come into play.
Is my product suitable for international shipping?
Know what it takes to ship your products out of the country –– or if those products are even suitable for such long distance shipping. Ideally, you ship items that are sturdy and compact to avoid an item breaking in transit, which can leave a bad customer impression.
If you are shipping perishable goods or large items, you may want to keep these items solely available to your domestic customers.
It is also important to be aware of any import and/or export restrictions subjected to the product and specific countries. Here’s a short list of items prohibited from international shipping:
- Air Bags
- Alcoholic Beverages
- Dry Ice
- Fresh Fruits and Vegetables
- Nail Polish
- Perfumes (containing alcohol)
This should not stop you from shipping internationally altogether and we’ll go over how you can restrict items from shipping to certain destinations in a bit.
Is there demand for my product?
Do the research! It is pretty easy to determine if there is demand for your product if you have already had requests from international customers. But, if you don’t have the luxury of knowing who already wants your products, you should look into what is currently being offered in countries you want to ship to. Try to find out if there are similar products being sold and what the competitors are doing.
In the same way you’ve built your national audience, you’ll want to access the competition and get your goods in front of your target audience. But, international consumers shop differently than you are used to. In Asia, for instance, Rakuten outpaces Amazon. If your goods sell well in the U.S. on Amazon, consider placing your product on Rakuten to test out market fit and demand.
Here are larger international marketplaces to keep your eye on as you expand. These are great places to test out your product offering before launching a site-wide campaign targeted to international customers.
- Rakuten: Asia, especially Japan, though the company is expanding outside of Asia as well, B2C marketplace
- Alibaba: Asia, China in particular, B2B marketplace
- Taobao: Asia, China in particular, B2C marketplace (the B2C side of Alibaba)
- Snapdeal: India, B2C marketplace
- Flipkart: India, B2C marketplace
- Amazon India: India, B2C marketplace
- Mercado Libre: Latin America, B2C marketplace
Choosing the Right Service
Shipping internationally comes with its own obstacles and you should do your research before opening your gate to the world. Some important factors such as shipping costs, tracking, delivery times and guarantees will come into play when you are looking into services. One service does not fit all. Know what international shipping service is the best fit for you and your customers’ needs.
Here is what to think through.
This could be a good choice for smaller companies because you will have the backing of a large company such as UPS, FedEx and DHL. These companies have years of experience in shipping both internationally and domestically.
With international carriers you will experience a higher level of international shipping services as they offer door to door tracking and guarantees in pricing. Since they are a larger company, their prices tend to start out higher, but there are options for negotiation.
This is the in-between option of international carriers and international freight forwarders. National carriers, such as USPS, Australia Post and Canada Post, focus on servicing a specific country. These companies normally offer lower prices than international carriers but you won’t have the detailed door-to-door tracking that you will find with the other carrier services.
International Freight Forwarders
An international freight forwarder manages your shipment from beginning to end. This is a good option for merchants with a larger shipping budget as the prices are slightly higher than international and national carriers.
This service will make breaking into the global market a little easier, and is is just about as simple as if you were shipping domestically. You send the package to the international freight forwarder’s hub and they take care of preparing and processing customs and other documentation involved in shipping internationally.
The following international freight forwarders (or 3PLs) are considered best-in-class, with the highest number of customers and revenue:
- DHL Supply Chain & Global Forwarding
- Kuehne + Nagel
- DB Schenker Logistics
- UPS Supply Chain Solutions
- Kintetsu World Express
- Nippon Express
- SDV (Bollore Group)
- Hellmann Worldwide Logistics
Know the Terminology
No matter what route you take when choosing a service for your international shipments, it helps to know some of the terminology so you can have educated conversations with carriers. Here are some key terms you should know to ensure you keep your new global customers satisfied and avoid any unwanted surprises –– for you or your customer.
Harmonized Tariff Code
Each of your products will have a harmonized tariff code which is required when preparing your commercial documents. This code indicates the description of the product and is legally required in many countries.
If you fail to put the correct code for a product, your shipment can be delayed or could result in higher duty and taxes. If you are unsure what code goes with a certain product, you can use the HTS search here to figure it out.
You will be required to complete documents for your international shipments. The set of documents you need to complete are dependent on the details of your shipment. These documents include:
- Commercial invoice: The commercial invoice determines the true value of the product you are shipping and is used when calculating the duties and taxes. This is completed by the exporter and is required by the foreign buyer to prove ownership and arrange for payment.
- Export declaration: The export declaration is a form that provides information on amount, nature and value of your product to the statistical office for compilation of foreign trade data and serves as an export control document.
- Certificate of origin: The certificate of origin is an official document authenticating what country a shipment has come from and is prepared by the exporter.
Duties and Taxes
Duties and taxes are imposed by the country importing the shipment to generate revenue and protect local industries against foreign competition. These are usually paid before the goods are released from customs and are based on product value, trade agreements, country of manufacture, use of the product and the product’s harmonized system code.
These fees can be paid by the customer (delivery duty unpaid), or the merchant (delivery duty paid). It is important to know the difference between the two before you make your first shipment as you don’t want to unknowingly leave your customer with additional fees when they receive their package.
- With delivery duty paid (DDP), you as the merchant are responsible for paying all duties and taxes. This includes all costs from your warehouse to the end destination such as transportation, customs clearance and handling expenses. The delivery duty will be paid by the carrier and that bill will be sent to you. If you have the means to do this, it is a much better option as it results in a richer experience for the customer.
- In contrast, deliver duty unpaid (DDU) requires payment from the recipient. You will still be responsible for transportation costs, but the customer is then responsible for paying the duty and other clearing expenses upon arrival. If the customer is not made aware of this before hand, it can lead to a sticky situation and a very unhappy customer. If you use this method, be clear on product pages that this is the case. Do not wait until after shipment to alert the customer.
Beware of Restrictions
You may find that some of your products are legally restricted from being imported to certain countries or it can even be illegal to export the product from your country. You wouldn’t believe some of the items we have found to be restricted from certain locations!
It is important to remember that customs has the right to stop the shipment of any package.
Don’t let this scare you off from breaking into the global market. You will just need to make sure you take these restrictions into account when you begin strategizing the shipping methods and options you want to use.
You can carry out these restrictions by using options embedded into your platform. For instance, use customer groups to allow shoppers from various countries to buy only those products you know you can export. This give you more control over the product offerings you display for those groups –– and allows you to collect email addresses to better market to that segment.
For a more sophisticated option, look into using a shipping rate management software such as ShipperHQ. These programs will automatically take into account a customer’s final shipping destination and alert them to issues with any items in their cart based on their location, or updated shipping prices (including DDU, if applicable) on the checkout page.
Either way, you will need to have the ability to enable restrictions for products based on origin and destination of shipments in order to scale your international selling.
In all, breaking into the global market can seem a bit overwhelming, but once you take the leap, you’ll open your business up to a larger purchasing audience, significantly increasing your sales and revenue. There is a whole world out there potentially searching for your products. With a few steps and a smart strategy, you can be there to answer their search.
Making the Leap: Implementation & Analysis
With the right team in place, your goals clearly defined, and your approach or approaches chosen, it’s time to implement your ecommerce shipping strategy. Each team member or team leader should be clear on their responsibilities. You don’t have to do everything all at once but everyone should be clear on their responsibilities each step of the way.
Your marketing team should be ready to communicate your new approach to your customers and potential customers, the web design or development team should get your site set up to offer these new options, your fulfillment team should be ready to make use of your new options and know how to handle each option the customer chooses, and your customer service team should be educated in the benefits of each option you’re now going to be offering your customers.
Once your new approach is live, make it the responsibility of each team to report on how well things are going for them. Often, a new approach will take some time to bed down so if you have the evidence to back up your changes be prepared to stick with it and make some adjustments as you go.
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