Holiday Shipping: Service Levels
Service levels provide shipping’s most direct potential impact on revenue due to online shoppers’ sensitivity to shipping cost. Having the right delivery time options at the right price—or even free—can make the difference between an abandoned cart and one with an extra item thrown in to meet a free shipping threshold.
The holidays offer a good excuse to reconsider what cost and delivery options you make available to your customers and which carriers and services you select to meet those delivery times and maintain the desired selling margin. Getting this mixture right will translate into more sales and higher margins for you, and an improved experience for your customers—in other words, a merry season for both seller and buyer!
If you haven’t evaluated the cost effectiveness of your shipping service levels lately, it’s a good idea to do so before the holiday rush. Here are some strategic decisions to consider:
- Free shipping threshold: if you currently don’t offer free shipping, consider offering it for order values above a threshold. A good rule of thumb is to set the shipping threshold at or slightly higher than your current average order value (AOV). Before implementing this change, model the impact it will have on your profits and determine the uptick in AOV and/or conversion necessary to justify that impact—then if you don’t realize the uptick, you can further adjust the threshold or try another model.
- Flat rate: If you want to simplify but aren’t ready for free shipping, take a look at flat rate, which works best in situations where the majority of orders ship for a relatively low actual cost ($5–$10). Again, you’ll want to model out the impact to see if it’s right for you.
- Saturday delivery: Consider offering Saturday delivery as an option for customers at an additional cost—or make it standard as a Christmas gift for your customers. In the latter case, it’s wise to calculate the incremental costs and ensure you can absorb them, or recover them elsewhere. You can also consider USPS where Saturday delivery, with no surcharge, is standard. In some instances USPS will even deliver on Sunday—especially relevant for Amazon sellers.
- Returns: Free, easy, no-questions-asked returns are becoming the norm in eCommerce and for good reason: according to eConsultancy, 56% of shoppers take issue with having to pay for returns. “81% of shoppers want simple, easy and free returns. 92% of shoppers say they would buy something again if they are happy with the return policy, while 67% of shoppers say they normally check the return page before making a purchase. Moreover 62% of shoppers are more likely to make an online purchase if they can return an item.”
- Timing: Think about how you want to articulate—and how boldly you want to commit to—cut-off dates (the last day a customer can order using a given shipping option and expect to get their package on time). The cut-off times published by various carriers are shown in the sidebar; you will need to pad these with your anticipated order-processing times to ensure you can internally hit the deadlines. We recommend publishing cut-off dates you are comfortable with and then doing whatever it takes to meet them.
For more information on shipping options, check out this excerpt from the Definitive Guide to eCommerce Shipping.
Once you’ve decided on changes to your shipping service levels, you’ll need to make some or all of the following preparations:
- Selling platform: Explain your new or updated shipping options in the appropriate sections of your online store(s) and code any needed computational rules into your selling platform. Calculate your comfortable “order by, for delivery by” deadlines for each shipping service level and include them on, at a minimum, your homepage, cart, and checkout pages. Remember that items with special shipping requirements may have special order-by dates, and stock-outs can render on-time delivery impossible, so include the appropriate disclaimers and consider revisiting your safety stock levels for high-demand items.
- Shipping platform: Update your shipping rules to reflect the new model to ensure proper carrier selection and shipping label generation.
- Shipping operations: Ensure your shipping workflow is updated to reflect any impact on picking, packing, packaging, labeling, etc. For example, if more packages will be shipped USPS, an end of day USPS Scan Form might be required. And it’s a good idea to monitor your order processing time closely as you approach your published “order by” cut-off deadlines to minimize the risk of missing any dates. It’s also a good idea to have a contingency plan in case something goes horribly awry and you end up shipping gifts that won’t arrive in time. If you are rolling out free returns for the first time, be sure your operations are set up to process the anticipated increase in volume.
- Monitoring: Set up reporting through your shipping and selling platforms to allow you to monitor the success of your new shipping options against the models you built in the strategy phase.
If possible, pick a low traffic day well ahead of the holiday season to go live with the new shipping option model. Then, as the new model is used by customers:
- Monitor business case metrics: Use your selling platform analytics and reporting functions to monitor the business case-related metrics (AOV, conversion) you anticipated improving as a result of this initiative.
- Monitor shipping metrics: Use your shipping platform analytics and reporting functions to monitor metrics related to the effectiveness and customer experience of the new model, such as on-time delivery, Saturday shipments, Saturday deliveries, free returns, etc.
According to UPS Pulse of the Online Shopper 2015, 58% of customers abandon their orders at checkout when shipping cost made the total purchase cost more than expected—and 85% of customers are willing to tolerate a 5-day shipping time frame to get free shipping.