How to offer free delivery?

[roystoys]

Hello,

I'm a new member here and I'm posting because I would like to know how some other online retailers offer free delivery. I own an online retail website in an area where, for the most part, competition is pretty fierce. A lot of the larger retailers offer free delivery on their items which pretty much blows me out of the water a lot of the time because as an independent retailer it's a struggle to compete with them on price alone. As a result net profit margins for a lot of items can easily be something like £1-3.

We currently use Royal Mail First Class Recorded Delivery to ship our items. We use it to ensure the items get sent to the customer as quickly as possible and make sure they get there. This can work out fairly expensive though and often times when I'm able to beat one of the larger online websites, or even just the RRP, when postage is added on top it rises above it effectively nullifying our price advantage.

I've considered offering free postage via Royal Mail Second Class to try to remain competitive but this is a fairly slow means of delivery and, as mentioned above, when the net profit margin can be as paltry as £1 it's possible sending an item off for free could result in a loss overall.

I've also considered something like "free delivery on orders over x amount" but the net profit on items is really all over the place and an item that costs £100 to buy could net me only a couple quid net profit whereas an item which costs me £20 could give me a fiver net profit so there's no guarantee I wouldn't end up losing money that way either.

So how do most online websites manage to offer free online delivery and still remain competitive? Is it that they're such a large company that they can afford to make pennies profit on each item as they sell so many? Or is there some other method they use? I realise different retailers have different methods but I'm clueless on the subject so any help is appreciated!

 

[sanjiv]

You would need to fix prices with a postage company. Big retailers order in a lot of bulk so have more margins and I would imagine but am not 100% sure that they get their delivery done for less because of this and often use slower services. Amazon use HDNL.

 

[Paul Kelly ICHYB]

They sell more than you, so they buy better than you!

This gives increased delivier volume, so they negotiate a better delivery rate than you!

This is a sad fact of a lot of markets!

it is also possible that, in some cases, they make bugger all or even create loss leaders!

 

[silvermusic]

OP, it's a problem I thought long and hard about some while back. Like yourself against the big industry players I'm small fry. On £10 or less items which account for about 80/90% of my sales to the public as much as I'd like to do free delivery isn't an option, it would cut margins to the bone.

Generally speaking those that do free delivery use the slowest crapiest service possible and they take longer to proccess your order. While people may want free delivery they also want items as quick as possible, it's human nature.

At first I tried offering Free UK P&P if the total was over a certain threshold, which worked quite well. However, it wasn't an option I could do for international orders, much as I'd have liked to.

In the end I settled on keeping all delivery first class and made sure I posted it within 24 hours, often the same day. I do discounted P&P for additional items too. The actual prices I charge are little more than the face value of the postage. so far it's gone down well with customers, They don't seem to mind paying for a fast service provided it's as low as I can get it. In turn this allows me to price my products to match the big players without losing margin.

Don't waste your time looking at second class with Royal Mail, the savings are minimal and it wont offset any any extra sales you think might happen. Tried that as well a long while ago.

 

[JamieM]

I don't agree with your strategy of trying to compete on price but if you want to try free delivery then you should try and set up a split test to see if it is worth while. It might not be.

To save money on shipping costs I would ditch recorded but keep it first class as service is important. Recorded is a waste of time though, the money you save will cover any losses.

Also, do you have a Packetpost account with Royal Mail? If not, then that will save you a fair bit too.

Even if you send under 5000 packets a year it is worth enquiring with them if you aren't too far away.

 

[toastking]

Competing on price is never a good long term strategy, as its something that anyone with a big bank balance can compete with, and they can even take away your sources leaving you stranded.

I would recommend offering first class postage and indicating something else about your product/service that makes it more desireable. If there isn't anything, find something that you can do for little effort/free/even relatively cheaply that they may want and you could start building up a reliable customer base.

 

[shadowlu]

Price competition is a sad thing.
And i notice some rules in Chinese online shopping.
At the every begining, they sold the goods in lower price even with on margin for dumping and many buyers went for the goods. The sellers positioned it as free ad.
When they owned amount of customers, they begin to add price and ignore after sevice.

I think you should ignore the free delivery and pay much attaction on the goods quality and after sevice not the quantity.

It must cost you longer time to attract customers, but it cost less time for your to stay your regular customers.

Good lucy for you!

 

[J-Wholesale]

Free delivery is a myth. It's a marketing strategy used to entice customers to spend more, or to place an order, but at the end of the day, the customer still pays for delivery - they just don't realise.

Company X offers free delivery on orders over £50. Company X still has to pay the delivery company the negotiated rate for the delivery. Company X's sole source of income is its customers. Therefore the customers are paying for the delivery.

Now, it's possible that Company X is making enough profits on the large volumes they sell to be able to absorb the delivery costs (the Book Depository springs to mind), in which case you can't compete on price. But it's just as likely that a decision was made to add £0.20 to every item for the purposes of offering 'free' delivery on the n% of orders that qualify. And here, you can compete. But you'd need to do the sums and work out if a tiny price increase is sufficient to allow 'free' delivery on those orders that you think would benefit from it.

 

[8420PR]

Free delivery (or delivery included in the price) makes it easier for consumers when shopping - and I'm sure increases sales (based on my experience as a consumer). Many people will disagree with me though.

In some markets (e.g. DVD sales, books etc) consumers will expect free delivery as all major players offer it, while others (clothing) it is not expected (as paying 4.95 for courier delivery is the norm).

It sounds like your biggest problem is you have significant competition selling the same product, and it is very easy for consumers to compare prices between consumers. Free delivery will not solve this, but I see a couple of options:

1. Push the service and value aspect of your business and products. Make customers percieve they get a better deal by paying more.
2. Develop a business plan (marketing, loss leaders etc) that gives you the scale to compete on price AND make a decent margin - likely to involve significant losses in the first few years with no guarantee of success.
3. Focus on a niche area - where you can be percieved as the experts (and therefore consumers may well pay more).

 

[nextdayprint]

Find a loss leader of your own, an item your customers are likely to use to benchmark you against other online sites and run that at competing prices, then have your other prices at what you feel are fairer prices to yourself. As some have already said whilst "free delivery" just means "delivery included", it is still a very nice feature as customers can instantly see what they are paying and don't feel scanked by unseen costs when they come to pay.

Obviously a lot depends on what products your selling and who you are trying to sell them to.

We do "free next day delivery" on our core items and whilst we do attempt to monitor our competitors prices and compete directly, we spend more time on optimising our site for user friendliness and SEO.

 

[silvermusic]

Free delivery (or delivery included in the price) makes it easier for consumers when shopping - and I'm sure increases sales (based on my experience as a consumer). Many people will disagree with me though.

It will increase sales that's for sure, but it won't make them anymore profitable. It's not always as simple as just adding the two together and hoping people will ignore the increased price as they're getting free delivery. Niether does it create additional items sold on each transaction to any great extent either. Delivery/P&P is an eternal pain in the neck, no one likes paying extra for it but someone has to pay for it at the end of the day. The only thing I would suggest is give each method a trial for 3-6 months and see what works best for you. As mentioned previously I've found a method that works for me for the time being, that may change in time and is always under review.

In some markets (e.g. DVD sales, books etc) consumers will expect free delivery as all major players offer it, while others (clothing) it is not expected (as paying 4.95 for courier delivery is the norm).

An area I know very well.

Firstly there's a vital difference with a lot of those products, they are based in the channel islands and don't pay 17.5% VAT so can afford to offer the same product/price AND free P&P compared to those of us in the UK. So in that respect we're not comparing like for like. amazon, HMV, Play, The Hut (partly) account for most of this.

If you look at independant DVD, CD, Book dealers in the UK you'll find the majority of us do charge for P&P, those that don't are no longer around with margins being as tight as they are. combined/discounted P&P for multiple items is common as is Free if the sale is over £X.

Free delivery will not solve this, but I see a couple of options:

1. Push the service and value aspect of your business and products. Make customers percieve they get a better deal by paying more.
2. Develop a business plan (marketing, loss leaders etc) that gives you the scale to compete on price AND make a decent margin - likely to involve significant losses in the first few years with no guarantee of success.
3. Focus on a niche area - where you can be percieved as the experts (and therefore consumers may well pay more).

Agree completely with points 1 and 3, and being small and nimble is key.

point 2 however, is impossible unless you're aiming to be the size of amazon and have bottomless pockets to fund it for the first few years. I'm sure someone can remember how long it was before Amazon broke into profit from startup? The Boom .com days are long gone.

Loss leaders do nothing but attract the bottom feeders looking for the cheapest price on the net, which is going totally in the face of points 1 and 2. Being able to find your own deals and special offers that you can undercut AND make a sensible profit on is a far better way.