October 23rd, 2006 | 2 MIN READ

Thoughts on Shipping from StartUp Nation

Written by Dave Olson

Start-up Nation's Head Coaches Jeff and Rich Sloan published an article called "Flat-Fee and Other Online Shipping Gimmicks to Sooth the Savvy Customer" discussing the ways retailers are attempting to remove (or soothe) a huge barrier to purchasing - shipping costs.

Most online consumers know the disappointment of checking-out only to find the shipping is more (or close to) the cost of the item itself. At that point of shipping 'sticker shock,' the customer can either: 1) give up and abandon the cart; 2) tough it out and pay the rate; or, 3) choose a promotional option to purchase more in order to receive free shipping.

But can retailers afford to offer free shipping without putting profitability at risk? Well, maybe, if done creatively, and preferably at mass volume. Amazon's Prime program (pay one rate for free shipping all year) is another take on the shipping conundrum and Amazon's CEO Jeff Bezos and Elastic Path's Jason Billingsley both offer thoughts on this topic.

Reporting on Prime, Inc. magazine asked Amazon founder and CEO Jeff Bezos how the company can afford “the guy who pays you $79 so he can order a $3.99 razor whenever he needs one. Bezos said, “It all works out. Somebody else will order an $800 digital camera. On average, it'll pencil out OK."

Jason Billingsley figures that for a return on investment for the average Prime customer, he must order only six to 10 times a year, depending on order size and content. Billingsley, vice president of marketing for Elastic Path Software, in Vancouver, says that because the typical cost of two-day shipping in North America is $7 to $10.

“Amazon's genius in launching Prime was that it essentially became like a buyer's club, or an insurance policy," Billingsley adds. “You may or may not use up your quota. It also promotes loyalty to Amazon, because there little need for consumers to look around for free-shipping offers."

Indeed, as online retailing continues to mature, customers will benefit from increased efficiencies and creative promotion in the wake of increased competition and sophistication. Even the shipping companies (both the public and private carriers) are finding new means of selling services (e.g. flat rate boxes, online labeling) so soon everything from books to bar-b-ques should be easier to order online and have delivered to the door.

“We're crossing some kind of new threshold here," says Mark Taylor, chief logistics officer of RedRoller, a Norwalk, Conn., provider of software that compares shipping costs. “Customers are the ones that are winning."

Read the whole Start-up Nation article: "Flat-Fee and Other Online Shipping Gimmicks to Sooth the Savvy Customer"

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