Recently, I read an interesting interview of Patrick Byrne, the CEO of Overstock.com. He suggests that women customers (presumably on his site) are more sensitive to shipping charges than men. He also suggests an interesting way to offer more free shipping –
Women [customers] care about the two primary things, the shipping cost and the quality of customer service. If you’re selling a product that is oriented towards women, you have to make sure you’ve got great customer service and you got to do something about your shipping.
If you’re selling $100 product and you know it’s going to cost you $10 to ship it, you are probably better off just saying it’s $110 with free shipping. That’s better than saying it’s $100, but there’s $10 charge in checkout.
This is an area that online merchants must pay attention to. According to a recent study, 63% of online shopper population are women. In addition, online shoppers are getting more sensitive to free shipping offers. According to Comscore, 42% of all e-commerce transactions in Q3 2009 included free shipping. From the chart below, you can see that free shipping has been on a steady rise over the past two years.
To understand this phenomenon further, they surveyed the e-commerce shoppers with the following question: When making a purchase online this holiday season, which of the following statements best describes how important free shipping is to you?
They also found another great data point from the survey. Orders that include free shipping were an average of 15-20% higher priced that orders without free shipping. This phenomenon is in sync with the idea proposed by Patrick (described above) – to include the shipping costs into the product price and then offer “free shipping”. I can see how such an offer will have a positive psychological impact on the customer. Or as Comscore puts it –
The consumer is satisfied knowing that he or she “got a deal” on their transaction.
Here is another example of how the merchants can use a free shipping threshold to entice the customers to round up their purchase to a higher dollar value. The author suggests to first calculate the average order size, and then to set a free shipping threshold at 10% above the average order size. This is a good idea to encourage customers to buy a few more items thus increasing the average order size.
Importance of measurement-driven management
In his interview, Patrick also highlights the importance of measurement-driven management.
You may have a 1000 customers and you’re getting $200,000 of revenue. [May be] 50 of those customers out of the 1000 are giving you all your profit and the other 950 people that you’re serving are actually costing you money… people who are figuring out how to find those patterns and harness them are able to strip so much cost out of their system
Obviously, big companies such as Overstock.com heavily use metrics to run their daily operations. I strongly recommend small businesses identify a few metrics that they can easily monitor, and measure them frequently to learn about the general health of their business.
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