The article was originally written by Anders Ekman, COO at Ingrid and a columnist at Dagens Logistik.
Last autumn, the chairmen of the Swedish Commercial Employees' Union, Seko, and Transport Workers' Union demanded a ban on free shipping in e-commerce.
The reason? It was believed that a ban like this would not only lead to better working conditions for freight companies, but also introduce more sustainable consumption and reduce environmental impact.
The problem with free shipping
It shouldn’t come as a surprise that free shipping and free returns cause excessive and, often, unnecessary shopping — among other things. Yet, the Swedish Trade Federation expressed an opposite view on behalf of its members.
Restrictions aside, wouldn’t it be nice if e-retailers start rethinking their free shipping policy after all? And is it true that free delivery is the best thing for all e-commerce companies? I don’t think so.
And here’s why.
Currently, many e-retailers are having a tough time. Online sales volumes are dropping, and the times when Instagram advertising and influencer collaborations offered great returns on investments seem to be over.
Over is also COVID-19 (knocking on wood), and the online shopping wave that came with closed brick-and-mortars and social distancing.
In this “new normal”, profiting from deliveries suddenly sounds like a pretty good idea. Imagine if paying for delivery could be translated into an income that can not only cover the shipping costs but affect the bottom line as well.
Interestingly, there is a “sweet spot” where paying for delivery might mean selling fewer products, but still earning more.
It was an idea that one of Ingrid's customers experimented with. They began to charge 10 SEK more for the delivery. The result? The conversion decreased by 2.5% but the value of an average shopping cart increased by 4.2%. At the end of the day, revenue from deliveries alone increased by 11% and the profit margin increased by 5.5%. Not bad.
And here's another idea: Why not offer different delivery options and prices based on what margin you have on the product? For example, a high-profit margin item should have a lower delivery cost and vice versa. Simple, but still unusual in Swedish e-commerce, as far as I see.
To pay for delivery or not, that is the question
“No, but deliveries must be free!”, you might think now. Do they really have to, though?
Together with researchers at Stockholm University, we investigated over 100,000 e-commerce purchases at Ingrid. It turned out that it was possible to charge 14-18 SEK more for home deliveries (e.g. Dooris, Early Bird, or Postnord's mailbox delivery) without it having a negative effect on the conversion. Yet, these options are often the ones the consumer pays the least for.
Weird, right? Sounds almost like people are making decisions with their gut instead of with data.
Sooner or later, shipping companies will be forced to increase prices even more. Many of the rising stars in the industry are venture capital financed and, according to Breakit, are backed up by even 20 SEK per delivery.
But, how long is venture capital willing to prioritize growth over profitability? Not for long, I think. Keeping that in mind, e-retailers should start getting the consumers used to paying a little (more) for delivery.
So, e-retailers, don’t be afraid to start charging your customers - experiment with different software integrations and prices as part of your e-commerce delivery strategy. Put a stop to excessive and unnecessary purchases. Maybe it will lead to a reduced number of orders, but higher revenue in the process. Sustainable, isn't it?