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Free Delivery Here to Stay, Research Firm Says

Free shipping is a costly promotion for snagging e-commerce customers. But since retailers have started down this path, they will have a tough time turning back, says a new industry report.

In a recent release, Forrester Research says that this holiday season, many online retailers picked up the delivery tab for customers -- a big draw for the 82 percent of consumers who say that shipping cost matters.

For the new year, retailers must resolve to pull in the reins on free shipping cost and offer it selectively, based on each order, according to a report from Forrester's Donnie Young along with David M. Cooperstein and Stacie S. McCullough.

A recent Forrester survey of 5,831 online shoppers revealed that for 82 percent of consumers, shipping costs factor into their purchase decision.

Furthermore, 62 percent of consumers pay close attention to shipping costs, and 31 pay at least some attention. Free delivery cuts the chance that a shopper some will abandon his or her cart when the total order reflects delivery fees.

Free shipping likely will be a key factor in grabbing the 11 million households that will begin shopping online in 2000, Forrester said. These customers represent a more mainstream and value-focused demographic, and any cut in the overall order cost is going to be a draw for them.

Since shipping charges appear increasingly likely to become a simple cost of doing business, Forrester recommends that e-merchants:

  • Offer it selectively -- by purchase size. For a retailer to offer free delivery, margins on the products being shipped must be high enough to cover the expense of shipping the item. Retailers should present discount offers on shipping to customers only after they have hit a certain dollar amount
  • Offer it selectively -- by customer. Retailers typically get about a 20 percent discount from carriers like UPS and FedEx versus standard shipping rates. Pass on the savings to loyal, profitable customers in the form of reduced charges or totally free shipping. Charge unprofitable or infrequent customers the standard shipping prices to maximize profitability
  • Embed shipping charges in the price. By building shipping costs into the item price and then offering "free delivery," customers get the perception that they are getting a deal. But keep in mind that price comparison engines abound on the Internet