Shipping charges are a vital consideration for online marketers. They are most interested in understanding consumer reactions to shipping charges.
Consumer Reactions To Shipping Charges
Academic marketers haven’t done as much work on the topic as one might expect. As Lewis, Singh, and Fay note, “Shipping charges are an important but under-researched element of the marketing mix for online and direct retailers”. (2006, page 51)
My guess is that the research is limited because it is hard to come up with a strong theory about why consumers do what they do. Looking at what happens in actual marketplaces is always appealing. Sadly it is hard to understand exactly what motivates consumers in the real world. As such Lewis and his colleagues are clear that theirs is an “empirical study”. This translates as: “we don’t have compelling theoretical explanations of how consumers are reacting to the shipping charges”. This is a shame. Still, all research has problems and the practical value of considering this important topic makes it a useful and interesting article.
The authors have a fantastic data set of a retailer’s sales and shipping charges. The data is especially good because the retailer has four different fee structures. This includes one that was free shipping for large ($75+) orders and another that was free shipping for everything.
Many of Lewis and his friends’ findings make intuitive sense. For example, they note the higher the margins the more one can justify the firm subsidizing the shipping charges.
Interestingly, and contrary to some prior theory, they find that: “It may be that the emphasis on shipping fees in online retailing has increased the salience of these fees to the point where consumers overweight shipping surcharges” (Lewis, Singh and Fay, 2006, page 60).
Consumers may hate shipping fees more than they dislike paying the same amount extra for the product.
Free Is Good
The summary: offering free shipping is certainly worth considering.
Read: Michael Lewis, Vishal Singh, and Scott Fay (2006) An Empirical Study of Nonlinear Shipping and Handling Fees on Purchase Incidence and Expenditure Decisions, Marketing Science, 25(1) pages 51-64