Will Shipping Rate Hikes Hurt E-Commerce Businesses?
In order to get a competitive edge during the holidays, many online retailers lowered or even eliminated the threshold for free shipping and free returns. But with major shippers increasing rates at the start of the new year, will ecommerce businesses have to cut back on their generosity? And if they do, how will it affect their success?
FedEx and UPS Raise Shipping Prices in January 2016
FedEx and UPS have raised prices by an average of 5 percent and the US Postal Service is hiking Priority Mail nearly 10 percent. These increases are all effective in mid-January 2016.
Companies like Target and Toys R Us cut their minimum order requirements for free shipping in half during the holidays, and Best Buy waived them entirely through January. This was doubtlessly welcomed by shoppers, but the question now facing sellers is whether they’ve created a level of expectation that will cause customers to balk if and when these incentives go away.
Managing Consumer Expectations
Someone has to pay for these higher shipping costs though, and with already tight margins it’s unlikely it will be the companies. But with consumers expecting free shipping with low qualifying minimums, how much can sellers raise them before encountering resistance?
That’s a question thousands of businesses will be wrestling with in the face of the rate increases. Will customers understand that the low minimums were limited-time promotions and take raises in stride? Or will companies have to find other ways to recover those costs—cutting back on discounts and sales promotions or increasing prices, for instance? While few analysts expect free shipping to disappear altogether, most agree that policies will have to be changed somehow to account for the increased costs.
One thing we’ve learned here at the Unleaded Group is that customers don’t like unpleasant surprises. That’s why we recommend that our e-commerce clients let customers know upfront what qualifies for discounts and savings. A simple statement like “Free Shipping on Orders Over $XX” on the home page will cut down on shopping cart abandonment. That’s just one of the ideas you’ll find in our blog article “Put the Brakes on Shopping Cart Abandonment.”
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