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Jun 17, 2009
Case Study

Adding Inexpensive Shipping Lifts Conversions, Lowers Costs: 5 Steps

SUMMARY: Looking for a way to satisfy price-conscious consumers without hurting your bottom line? Take a look at your shipping options.

See how an online fragrance retailer got a double benefit by adding a new, super-cheap shipping option to their site. Their shipping costs fell 33%, and conversions increased 14.6%.
CHALLENGE

Howard Wyner, CEO, Scentiments, and his team needed to boost the bottom line, but they did not want to increase their prices.

Scentiments’ customers visit the fragrance retailer’s website to buy name-brand scents at bargain prices. They’re brand conscious and price sensitive, Wyner says. So the team hit on a possible solution: Add a new shipping option that appealed to that price-sensitive consumer.

"A majority of merchants out there take a hit on shipping," Wyner says. "On average, you could lose $2 to $3 per order. And when you’re in a competitive environment like we are, where price is the driving factor for sales, you can’t charge the true shipping costs -- you can’t."

CAMPAIGN

Wyner’s team adjusted their mix of shipping providers to offer a less expensive shipping option that would require a few extra days for orders to reach customers. They continued offering their normal shipping options, in case customers did not want to wait longer for their orders.

Here are the five steps Wyner’s team took to add the new shipping option to their site:

Step #1. Assess existing shipping options

The team first looked at the cheapest shipping option they offered, and the estimated number of days it took for a package to arrive.

Scentiments charged $5.99 for standard ground shipping, which took about three or four business days to arrive. That price, however, was below what Scentiments paid to ship the package.

Other shipping options included:
o 3-Day Select: $9.98
o 2nd-Day Air: $12. 98
o Alaska, Hawaii, Puerto Rico, Virgin Islands Parcel Post: $13.49
o Guam, Palau Parcel Post: $14.99
o Alaska, Hawaii 2nd-Day Air: $24.99

Step #2. Identify cheaper shipping alternative

The team found a cheaper shipping option from another provider. This system operated under the following rules:
o Packages less than one pound would be sent through the United States Postal Service
o Packages more than one pound would be sent through the shipper’s system, which involves a network of distribution hubs and transit routes
o For the last few miles of the package’s journey, packages over one pound are handed off to the USPS for final delivery

Benefits of this system:

- Saturday delivery

The USPS delivers packages on Saturdays, unlike many other shippers.

- In the mailbox

The USPS delivers to customers’ mailboxes. Many shipping companies leave packages outside the house, which can be inconvenient.

- Much cheaper

This shipping system enabled Wyner’s team to charge $3.99 per order for all orders shipped this way, regardless of weight.

That price was slightly higher than it cost Wyner’s team to ship an order that was less than one pound, which prevented them from losing money on shipping fees.

Drawbacks of the system:

- Longer delivery time

Delivery would take about six business days on average, compared to three or four business days.

- Still losing money on heavy packages

Larger packages cost more to ship than the $3.99 charged to consumers.

Step #3. Adjust fulfillment process to accommodate multiple shippers

To test the cheaper shipping option, the team adjusted their fulfillment process to accommodate the use of multiple shipping companies. Here are two changes that had to be made:

- Labels

Additional shipping labels had to be generated by the team’s internal shipping software to accommodate the new shipper.

- Software

Wyner’s team had to work with the IT department to make the necessary changes to the system’s shipping and tracking software to accommodate multiple shippers.

The system was set up so that once a customer chose a shipping option and made a purchase, the correct label was automatically printed as a sticker that could be pulled off and applied to the correct package. Afterward, the packages were handed off to a consolidation service that handled the rest of the process, Wyner says.

Step #4. List new shipping option on the website

The team dubbed the new shipping option "Super Saver Shipping" and added it on April 6:
o Super Saver Shipping was one of seven shipping options
o Super Saver Shipping was the lowest-priced option, and was placed at the top of the list from which customers selected

TIP: Include an explanation

The team placed the hyperlinked text,"What is this?" next to the new shipping option to give customers an explanation of the process (see creative samples below).

Highlights of the explanation included:

- Step-by-step instructions for how to take advantage of Super Saver Shipping.

- Bold text explaining the additional transit time: "Please note that your order may take an additional 2 to 3 business days to arrive from our fulfillment center(s). Transit time for Super Saver Shipping orders is 2 to 10 business days after shipping."

- A note that packages will be delivered Monday through Saturday.

- A note recommending other options for customers who needed faster delivery: "If you require day definite delivery please choose ground, 3 day select or 2nd day air service."

- A color-coded map of the continental US that showed the estimated number of days required for delivery.

Step #5. Promote the Super Saver Shipping option

For the first month, the team did not promote the new option. They "soft launched" it by adding it to the shipping options in the checkout process.

But in advance of Mother’s Day, on May 10, the team sent an email to previous customers that promoted the new shipping option. The email also mentioned that Super Saver Shipping should not be used for time sensitive orders.

"For Mother’s Day, we specified that ‘Hey, if you don’t need your order for Mother’s Day, go with the $3.99 Super Saver Shipping. It’s a great value, your order will be tracked, you’ll get great benefits and you’ll pay less," says Wyner. "But if you need your order for Mother’s Day, don’t pick it."



RESULTS


About 85% of customers now select Super Saver Shipping. That surprised Wyner.

"That tells you a lot. Customers are still price conscious, and they’re willing to wait a little while longer to save a couple of bucks."

The impact:

- 33% drop in shipping costs

The team’s shipping costs have come way down because the Super Saver option is priced slightly higher than what it actually costs Scentiments to ship packages under one pound.

The savings are compounded because fewer people choose the ground shipping option, which is priced slightly lower than Scentiments’ actual cost of shipping.

"We’re still taking a hit on the heavier packages, but now we’re at a comfortable hit. The hit is not as dramatic," Wyner says.

- 14.6% increase in conversions

The team saw the number of completed sales jump after adding the lower-priced shipping option.

However, there was one negative result:

- Upset partners

Scentiments’ original shipping partner lost about 85% of its business from Wyner’s team. He has been in talks with the shipper’s representatives, who are working on a plan to either cut their price or provide more value for the price they’re already charging.

The Mother’s Day email promotion helped create awareness for the program. Emails sent from April 26 through May 1 generated:
o 18% open rate
o 17% clickthrough rate
o 5.96% conversion rate (a 35% increase over average)

Wyner’s team has not promoted the new shipping option in any other way, although the team plans to do more emails in the future.

Useful links related to this article:

Creative Samples from Scentiments’ Super Saver Shipping program
http://www.marketingsherpa.com/cs/Scentiments/index.htm


FedEx Smart Post: Provides shipping service
http://fedex.com/us/smartpost/


Scentiments
http://www.scentiments.com/


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