A great deal has been written regarding the expectations that e-consumers have regarding delivery charges. Free delivery options have been rolled out on mass by large online retailers and small retailers have followed suit in order to remain competitive. Research conducted (with US respondents) by ComScore in December 2011 showed that 36% of consumers wouldn’t consider purchasing an item if they were required to pay delivery and a further 42% actively seek out retailers offering free delivery. Further research found that after product price, shipping charges were the most important element of consideration in online shopping; ahead of consumer reviews, retailer reputation and speed of delivery. This requirement erodes retailer margins, but it’s viewed as necessary to compete in the market. What about when you want to expand your business into international online markets? Should you offer free international delivery? The offer of free of charge delivery amongst UK e-tailers is growing, with 37% offering free delivery over a certain threshold to overseas customers, up from 6% in 2012 (MICROS Systems UK Limited, 2014). Can you afford to provide international delivery free of charge? Alternatively, can you grow an international business whilst not offering free delivery?
Reasons not to Charge
Some customers won’t buy if delivery isn’t free
As highlighted previously, some customers simply won’t shop with you if you don’t offer free delivery. When you’re conducting market research prior to launching your e-commerce site in an international market, you need to understand whether free delivery is an expectation amongst consumers within your vertical. More to follow on this point!
The competition charge
Similar to the previous point, this is something that you need to find out before launching into a market. If the competition in the target international market offer free of charge delivery, then your business will struggle to compete if you don’t provide the same service.
Increased order value
E-tailers that offer free of charge delivery commonly do so by setting a minimum order value which is above the average order value on their website. So, by offering free delivery, you’re incentivising your customer to spend more with you.
Whilst many businesses offer free of charge delivery, the service is certainly not universal. If you do offer free delivery whilst some of your competitors don’t, you’re encouraging repeat business from customers that seek out or will only purchase from retailers offering free of charge delivery.
Reasons to Charge
Impact on profit margins
Obviously, there’s an impact on margins and this impact will be greater with international customers if you decide to offer a product price similar to that in the domestic market.
You could be offering an incentive to customers who would make the purchase regardless of the free delivery, therefore your business is unnecessarily losing profit margins with a section of customers.
Researching the Market before making a decision
Before you make a decision on delivery charges, you need to understand the offering in your target market. Free delivery isn’t necessarily expected in every country. A quick way to check this is by running some keyword research in the international target markets that you’re considering. I’ve done this using a mock case study for a UK e-tailer selling home brewing apparatus. You can see the keyword research conducted in this spreadsheet. The target international markets that we’re considering in this case study are France, Germany and Spain. The main keyword in our domestic market that we target and rank for on Google is ‘home brewing kit’. We want to find our competitors in the target markets and understand how widely they promote free delivery. We can find our main competitors by searching on Google in France, Germany and Spain, but rather than directly translating our keyword into the respective languages, we want to search for a relevant keyword which we know is being used regularly on Google. You need to use Google Adwords to do this (if you don’t have an account you’ll need to sign up for one, it’s free!), then type in the translated version of your keyword into the keyword search tool (if you don’t speak these languages, use Google Translate to get the translation). Then, you’ll find the most popular search term being used relevant to ‘home brewing kit’ (i.e. kit fabrication biere). Type this search term into the relevant Google search engine (Google.fr) and that’s where you’ll find your competition.
Once you understand your target competitor search terms in each language/market, it’s worth broadening the search. We don’t just want to understand the delivery charge norms within the online home brewing industry, we also want to get a feel for the general expectations of delivery charges in the target international markets. We can get an idea of this by researching other verticals. For our case study, I decided that other hobby and leisure markets (specifically gaming and fishing) would act as a good fit and provide some insight into the delivery culture.
The results are displayed in the diagram below:
The research showed that whilst the target markets don’t actively promote free delivery as widely as the UK, it’s still quite common, particularly in Germany and Spain. In France, this offering doesn’t seem to be very common, so if we were to export here, the consumers may not have an expectation of free delivery. If we decided that France was the right market to target, we’d then make the decision whether to offer free delivery (if possible) as a point of differentiation, or whether to charge for the French market but subsidise deliveries so that our delivery charges are similar to those that French consumers receive when buying from French businesses.
Free Delivery Options
Free shipping at certain times of year
If free shipping all year round isn’t viable, maybe you could use it as a periodic promotion. You could use it during peak seasons in order to maximise busy periods, or you could use it during traditionally slow seasons in order to boost business. Alternatively, you could just keep things interesting on your site by offering free delivery on a different item each week.
This method can also be used to test the impact of free delivery. After a few months of launching your international website, if you haven’t been offering free delivery, try a one week promotion and see what impact it has on your conversion rate. If the impact is significant, run through the financials to discover whether the additional business attracted by the free delivery compensates for the additional costs of absorbing delivery charges.
Free shipping to paying members
You could offer free shipping to members who pay an annual fee. Amazon has run a similar scheme via Amazon Prime. The fee should be absorbed to cushion a portion of the delivery costs rather than cover them completely. This method is also an effective way of encouraging repeat orders. If customers have paid into membership, their likely to want to make the most of their money and use the free delivery service, which means more repeat orders!
Free shipping through loyalty programmes
This option doesn’t necessarily claim back any of the lost margins from offering free delivery, but it does draw in some additional benefits. You could offer free delivery to customers who sign up to your loyalty programme, which includes newsletter sign up and promotional updates. If you’re offering free delivery, why not try to draw some added marketing benefits?
Free delivery on orders over a specified value
This is a pretty common option amongst smaller retailers. The best way to work out the value is to set it at 10-15% above your average order value. This is a traditional model for domestic deliveries, so it may not be very practical for international. Understand your delivery costs to the international market in question; this should form part of the decision for that order value benchmark.
Include the increased free shipping in the product price
This removes the commercial risks of offering free delivery, but clearly you need to research competitor pricing in the international market to work out whether you’ll still be competitive by using this method. Perhaps, rather than including the full shipping cost in the price of the product, you only include the incremental cost of the international compared to the domestic charges.
Free shipping on certain products
It may not be practical to offer free shipping on all products, but you could offer the free shipping incentive to selected products when it makes commercial sense. If we use our previous case study example, our brewing apparatus is very heavy, so shipping costs are high. It’s not feasible to send this kind of product free of charge and our consumers don’t expect to receive free delivery for these kinds of goods. However, the drawback for consumers would be if they were expected to pay for delivery each time they needed to top up on an ingredient or accessory. As a business, we can offer free delivery on these items (potentially over a certain order value) as they’re lightweight and relatively cheap to send. Additionally, if we make this offer prominent on the website, this will have a positive impact on sales of our apparatus as customers are aware that although they’re required to pay delivery on the initial equipment, they won’t have to on the small consumables that they’ll need to purchase regularly.
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Customers love free shipping. Although delivery charges will increase if you expand your business into international markets, think of it this way: You’re exporting into a new market and opening up huge opportunities to your business. You don’t have a store location, rent or employees to serve that market, so you can work out a way to swallow the shipping costs!