December 18, 2020
Selling online? Shipping worldwide? 50% of online shoppers abandon their shopping cart and go buy somewhere else, because the store’s shipping service sucks. Don’t be one of them. A primer on how to use shipping service optimization as your secret weapon to increase checkout conversion.
In a world of Amazon Prime One-Day Free Shipping, I know very few people who are willing to spend a considerable percentage of the order value in extra shipping fees.
Having said that, I admit that I hate brick & mortar shopping. I just don’t like hanging out in malls for hours (exclude food courts), occupying fitting rooms and spending time window-shopping just for the fun of it. Now even less so with Covid out there. I’m one of those people who like to get their shopping done fast. So I shop online. Much like other people: “In 2021, over 2.14 billion people worldwide are expected to buy goods and services online, up from 1.66 billion global digital buyers in 2016”.
I also get excited about international brands, because they carry products you would usually not get in your local shops, or in your country, or even on your continent. Really, I don’t know what it is, but those sleek new anti-odor sneakers in that kickstarter campaign, that are made to be worn without socks, in water, just make me curious. Oh, and of course they’re made in Singapore. I live in Switzerland, so I guess simply trying on a pair or two is not an option.
How I miss those fitting rooms.
Even if campaigns like this one offer free worldwide shipping, chances are that the pair doesn’t fit perfectly, and you would rather slip on half a size larger or smaller, just to be sure. The whole excitement can quickly turn into disappointment, when return shipping fees and other charges for customs and taxes apply (again). Let alone the additional time for the roundtrip of shipping between Europe and Singapore (probably by air freight) is not exactly green either.
Unfortunately, I find myself bumping into shipping inconvenience regularly, especially when shopping cross-borders.
Take Taylor Stitch. I really like the brand and I am eying this classic light blue shirt for $98. I add it to my cart, go to checkout and I see the cheapest shipping option is $51.92.
Hefty. That’s more than half of what the shirt costs. Also, I get no indication on the shipping time or when the shirt would arrive in Switzerland. I don’t need the exact day, but a range would help me with my purchase decision. Who knows, perhaps I’d opt for the expedited option below, which is $15 more expensive, but has no ETA indication either. Why would I pay an additional $15 when I don’t know what I’m paying for? Is it 10 days faster.. 5 days.. 1 day? In general it is recommended to put an ETA date range here, so that customers have a rough idea when to expect the parcel to arrive.
Even premium brands with top online stores offer disappointing international shipping options. Sure, there are pleasant exceptions with shops that understand the importance of it, but in my experience, those are rare, and usually the ones with big pockets.
Let’s have a look at the message just above the two shipping options: “Please note: orders are dispatched Monday–Friday and are subject to 24 hours processing time.”
Whatever the non-existing shipping time is, now you can add another day for processing (picking, packing, labeling and preparing the parcel for pick-up by the transportation provider). When you order on a Friday morning, the shirt doesn’t leave the warehouse until the following Monday. In the fine-print they say that domestic shipping means U.S. Shipping, so I assume all orders are sent from a central U.S. warehouse.
Additional fees are also mentioned: “Please also note that additional duties and import fees may be charged, based on your receiving country’s laws, and that this is unavoidable”. Interesting! Cross-border shipping can involve customs fees, correct, and it is common practice to let customers pay for that. The reason behind this practice is that such fees are highly country dependent and it’s hard for the merchants to foresee the exact cost. However, that doesn’t make the checkout UX any better. While there are no ways around paying customs fees, there are better ways to incorporate that in total shipping fees during the checkout process. Stay with me.. more on that below.
Let’s assume that despite all those drawbacks, I’d still be interested in buying the shirt. I’d probably have to wait for a week or more for the parcel to be sent across continents, just to send it back because the shirt may not fit or I expected the fabric to feel different. For me as a person who likes stuff to be simple, all of this already adds too much distraction in my purchase decision, so I regularly decide in such situations NOT to buy the product.
Still, I would totally spend $98 for a high-quality shirt that fits perfectly. Think about it: There seems to be a potential of international buyers who are motivated to spend money on products at the offered price-point, but are distracted by high shipping fees and bad shipping conditions like shipping delays and uncertainty around returns.
Superpower or Kryptonite?
Baymard did a quantitative study of reasons for shopping cart abandonment in 2020, considering 4,560 responses from US adults, and it shows a clear tendency towards shipping, or logistics in general, as the main driver for cart abandonment. The study also points out that many users just browse through the catalog and leave the shop because they never had the actual intention to buy anything anyway. With that in mind, they found that “58.6% of US online shoppers have abandoned a cart within the last 3 months because ‘I was just browsing / not ready to buy’.”
Let’s have a look at reasons that are shipping related:
- Extra costs too high (shipping, tax, fees): 50%
- Delivery was too slow: 18%
- Returns policy wasn’t satisfactory: 10%
In fact, all the other reasons considered in the study are related to issues regarding design, tech/dev or payment. That leaves us with a total of 78% (accumulated, not normalized) with shipping related reasons why shoppers abandon carts and buy somewhere else.
Ignoring this number is almost like ignoring the importance of a delightful product presentation generating leads in the first place, and perhaps even worse. If you do, a potential Superpower can quickly turn into your Kryptonite.
Considering Baymard’s study, apparently a remarkable amount of marketing dollars fall into a category of sessions that simply don’t convert because of bad shipping service.
Other studies suggest a similar pattern, e.g. here and here.
Make shipping your superpower
Let’s see how we can do better.
1) Faster shipping leads to better conversion in 5-8 sessions out of 10.
According to the studies referenced above, shipping is a key driver of successfully converting your checkout sessions into orders, and converting motivated buyers, into actual paying customers. The longer the distance between the product and the customer, the more this needs to be factored in. Hence international shipping has a bigger potential for optimization than domestic shipping.
If you get shipping right, it not only generates you more sales, but also happy customers, which would (a) buy again from you and (b) recommend buying from you to their network as well. Your result: Increased sales, increased customer loyalty, and implicit advertising through happy customers. Why? Because they love your service.
2) Compound your sales growth 4.7X: Setup shipping optimization before Ad Spend.
If we accept point no. 1) to be true, then solving the big shipping inconvenience for your customers will motivate them to complete a purchase in your store. Achieving this before(!) you spend hard-earned profit for customer acquisition, actually makes a huge difference. How much difference? Let’s get into a quick example. First, let’s forecast your growth rate with a constant conversion rate of 1%:
We are starting the calculation with 10,000 sessions per month and you are constantly running a 1% conversion rate. That gives you 100 orders per month to start with. You also have a monthly ad spend that yields 3% new sessions month over month, so after a 6 months time period, you end up with 11,941 sessions in month 6, which gives you 119 orders at the same conversion rate of 1%. Result: Your ad spend gave you a total sales increase of 19% after 6 months.
Now add the compounding effect:
Let’s say you enter a 6-month global shipping service optimization program, and let’s assume that it would improve your conversion rate by 10 basis points per month (which seems doable considering how important shipping is to your customers). This 0.1% CR increase would come in addition to your 3% increase in total sessions from your ads. Now, after 6 months, you would end up with 191 orders, instead of 119. That’s a 91% sales increase, compared to just 19%, or 4.7X on your order growth compared to no shipping optimization.
Bottom line: A boost to your conversion rate has a compounding effect on your top-line revenue. Continuously. So investing in your shipping strategy before increasing ad spend makes a ton of sense.
3) Decentralized Inventory: Speed up your international shipping from 10 to 2 days, and better.
Imagine you would offer a 2-Day standard shipping option. This can physically only work if products are stored somewhere close to your customer. Decentralizing inventory is when you don’t operate from one central warehouse, but when you move products to other locations closer to your customer. When a customer places an order, you fulfill that order from a location that is closest to your customer’s shipping address. In other words, you move a product before it is ordered. You do that because you expect it to be ordered at some point, so why not anticipate the demand and move the product now.
Let’s look at an example again: A US store and a customer in Europe. As a US Store, decentralize your inventory to just one warehouse in Europe, e.g. located in the Netherlands, or in Germany. With this move alone, you would be immediately able to offer 2 days standard shipping to all your European customers.
Even better: With simulation tools and data-based network optimizations you can calculate the effectiveness of Same-Day shipping scenarios in urban areas. Let’s say you’re selling nutrition products and you want to push them in a certain region according to your global expansion strategy. Offer a temporary free same-day shipping service to give your sales a boost. Test different cities and different regions for short timeframes and use the results to allocate the budget even more effectively in the next iteration. The physical operation on the ground is done by a network of micro-fulfillment centers in and around big cities of your target region. Result: You go from 10 days regular international shipping to 0 days = Premium Same-Day Shipping. Not too bad for a product that was just purchased on the other side of the world!
Use those premium options temporarily, run special promotions and grow your brand awareness in new target markets. A great tweak to incorporate in your marketing strategy.
4) Cut your transportation cost by 81% and save the environment with 47X less emissions
Air freight is the faster option, but also more expensive: A $195 ocean shipment can cost $1,000 by air. You don’t have to choose the fastest option available, because of your time advantage by decentralizing inventory before the orders arrive. Ocean freight usually is considerably cheaper, and also takes a lot more time, but since you have anticipated your demand, time is not the limiting factor anymore. It is perfectly ok for those internal stock transfer shipments to take 2-3 weeks (considering shelf life restrictions depending on the product category, of course).
Bulk shipments are more efficient, too: When you ship long-haul in bulk, instead of parcel-by-parcel, you save processing time and expenses in your own warehouse, because you don’t have to pick, pack and load each and every single customer order. Instead, just put everything on a pallet and ship it in a container by ocean freight. Streamline even more: Work with your manufacturer and have inventory sent directly from the manufacturing plant to your decentralized warehouses around the world. Import/export efficiency gains included.
Bonus benefit: Eco-friendly shipping. Long-haul ocean freight is not only cheaper than air transportation, but also generates 47 times less emissions per ton-mile, says the MIT.
5) Eliminate unexpected extra fees for your customers
Most of the stores that I have studied write something along the lines of “Customs and duties may apply depending on the customer’s country and must be carried by the customer”. Often, this circumstance is not even pointed out clear enough to the customer at checkout. That is bad practice, because it always leads to frustration for all customers in those countries where additional duties apply. That is disappointing, not only in terms of a missed opportunity for repeat sales, but also because it is avoidable with decentralized inventory. When products are ordered from decentralized warehouses, they have already crossed borders and cleared customs, and you know the cost of it. Also, you are able to realize lower customs fees when you send your inventory at purchase price, instead of retail price. You will have to cover that cost prior to the sale of the product, but once the cost is known, it can be incorporated in a total shipping price (incl. taxes and fees). This enables you to offer a Delivered Duty Paid (DDP) shipping service and your customer will be happy to pay less overall, without any bad surprises at the end of the checkout.
I know very few international stores that do DDP. Good for you! This is your chance to stand out of the crowd with a service that solves one of your customer’s headaches.
Shipping your products in bulk has some advantages when crossing borders, too. You clear customs faster and cheaper because there is no need to clear every single parcel.
After so many Do’s, here is a Don’t: Don’t try to hide your shipping fees in the “Duty and Tax” category, as the example shows below. There is nothing wrong with putting a FREE SHIPPING promotion on your front page, but then don’t try to cash in shipping fees later at checkout. This can only lead to frustration, and… you guessed it, lost customers.
6) Convenient returns, happy customers! 92% to be exact.
Did you know that “67% of shoppers check the returns page before making a purchase”? Also, “92% of consumers surveyed said that they will buy again if the product return process is easy”. Convincing your customers that returns will be hassle-free can be a huge lever, especially in the clothing industry. The closer your physical inventory to your customer, the less your returns have an effect on logistics cost overall. True, you may have more returns in total, but if a proper returns strategy is in place, you can even use it to your advantage: Returned items go through a quality check (plus cleaning/disinfection if necessary) and are moved back directly into inventory and your sales cycle. Inventory aside: A slick returns process can do wonders to your year-end sales stats.
7) Demand Forecasting: The superpower of superpowers.
Last but not least, let’s talk about your demand forecast. Accurately predicting how much of what will sell where and when is an art. Books have been written about it, software has been written for it, and the largest enterprises on this planet hire teams of highly paid experts to answer that question as precisely as possible.
Why is it so important: It is the central business function which both short-term tactical and long-term strategic business plans rely on. Investment decisions are made based on how much will sell in the future, and whether or not to enter a new market. It drives capacity planning and inventory management. When you decentralize inventory, it answers the question how much of which product you need to transfer to which location.
When you are selling 100 of product A in market X per month, then how much do you ship to market X per month? Probably 100. What if your last Instagram post goes viral and you have orders of 200? Too bad you only put 100 on stock. Better have some safety stock! But how much? 30? 50? 100? How do you know? It gets more complicated with seasonal products, planned promotions, other unplanned events, and sometimes even the weather. Now let’s add a better shipping service. That should be a boon to your demand curve… at least that’s why we are doing all of this. But how much of a boon? 10%? 30%? 50%? You want to be stocked up to make a sale when customers pile into your store, but if not, you don’t want to overpay for storage and transportation of excessive inventory. It’s all about the right balance and finding it is the job of good demand forecasting.
Here’s the good news: If you get it right, you enjoy all the fruits of your optimization efforts, while keeping the expenses in check. And again, I would recommend taking the iterative path and testing decentralization strategies with a small set of your products (‘C’ items, rather than ‘A’). Keep your safety stock on the higher end to capitalize on sales opportunities. Also collect as much data as you can en route – this is the fuel that’s feeding back into your prediction models to improve your forecast and fire up the next iterations.
Ship Better, Sell More
That is the basic formula it comes down to.
Remember my $98 shirt from the beginning that I didn’t buy? How do you think our 7 shipping hacks would have changed my purchase decision?
Well, I would probably get…
- to pay less for shipping without any unexpected fees
- my shirt to show up on my doorstep in 2 days or less
- to return the shirt without additional cost if it doesn’t fit well.
Personally, under those conditions, I would actually buy the shirt for $98.
Shipping optimization is the key, happy customers and an increased conversion rate are the effect, and sales growth is the result. Of course all these optimizations don’t come for free. The whole equation only adds up because you do grow your sales. The fact that you are now selling more products to more customers allows you to increase your top-line which can be reinvested in better logistics and as a result, better shipping services, yielding even better conversion and higher sales and profit. Look at it as a constant iterative improvement cycle, instead of a one-off gig, and you are in pole position for constant progress with your strategic growth goals for your online business.