As exciting as e-commerce is, it’s still a bricks-and-mortar world when it comes to the average American shopper. So some of the most powerful lures in online retailing these days focus on cheap shipping.
“Fixed shipping fees make the purchasing decision cleaner for consumers,” says Matt Rutledge, CEO of Woot Inc., a Carrollton, Texas e-tailer of consumer electronics and other gear. “For them, you’ve got to make it akin to driving out to buy something at the store. It’s neat and clean.
“The further away that you can tuck shipping distastefulness from the online-buying experience, the better.”
That bit of psychology explains the popularity of e-tail icon Amazon.com’s flat-fee Prime shipping service, launched in 2005. For $79 a year, members get unlimited, free two-day shipping with no minimum purchase.
The times, they have a-changed
Once upon a time, not very long ago, e-tailers thought way differently about shipping fees. Many sites showed their high shipping fees only near the end of a transaction — a margin-enhancing “gotcha” — to make up for one of the high costs of selling on the Web. But savvy consumers who spent a little time comparing prices often found that shipping fees wiped out the “deal” they thought they were getting.
Today, the Web is still a low-margin environment, but Prime, among other models, was a response to higher consumer awareness of — even preoccupation with — stiff and often padded shipping charges.
“People who are online love free shipping, and if there’s a shipping charge, they like to know what it is before they totally check out,” says Miki Dzugan, president and marketing chief of Rapport Online, an Internet consulting firm in Sedona, Ariz.
Some cold, hard facts
A recent Jupiter Research survey found that free shipping is the top promotional method of encouraging online buying. In another recent study, rival market-research firm Forrester Research reported that 57 percent of abandoned online shopping carts were tied directly to surprise shipping fees at the end of a purchase.
Forrester also found that 88 percent of the online shoppers surveyed have left items in a cart without completing the purchase.
What’s the math?
Reporting on Prime, Inc. magazine asked Amazon founder and CEO Jeff Bezos how the company can afford “the guy who pays you $79 so he can order a $3.99 razor whenever he needs one.” Bezos said, “It all works out. Somebody else will order an $800 digital camera. On average, it’ll pencil out OK.”
Jason Billingsley figures that for a return on investment for the average Prime customer, he must order only six to 10 times a year, depending on order size and content. Billingsley, vice president of marketing for Elastic Path Software, in Vancouver, says that’s because the typical cost of two-day shipping in North America is $7 to $10.
“Amazon’s genius in launching Prime was that it essentially became like a buyer’s club, or an insurance policy,” Billingsley adds. “You may or may not use up your quota. It also promotes loyalty to Amazon, because there’s little need for consumers to look around for free-shipping offers.”
Other takes on the tack
Yoox.com, a fashion and accessories e-tailer, charges $7.95 for regular shipping and $14.50 for express — no matter the order. “That’s because we continually want to have the best customer care and be fair, and not dissuade people from buying more product from us for larger amounts of money,” says Hilary Bowers, co-founder of the New York City-based company. “It costs us far more than that to ship most orders.”
More e-tailers are moving right past flat-fees to free shipping. Petsmart, the online pet supplier, offers it for orders of more than $75.
“We’re crossing some kind of new threshold here,” says Mark Taylor, chief logistics officer of RedRoller, a Norwalk, Conn., provider of software that compares shipping costs. “Customers are the ones that are winning.”
Article provided by: Startupnation
Credit where it’s definitely due: this post was inspired by a Twitter conversation with Box CEO Aaron Levie.
Don’t look now, but something remarkable is happening.
Instagram had twelve employees when it was purchased for $700 million; all of its actual computing power was outsourced to Amazon Web Services. Mighty ARM has only 2300 employees, but there are more than 35 billion ARM-based chips out there. They do no manufacturing; instead they license their designs to companies like Apple, who in turn contract withcompanies like TSMC for the actual fabrication. Nest Labs and Ubiquiti are both 200-employee hardware companies worth circa $1 billion…who subcontract their actual manufacturing out to China.
Warren Buffett has long advocated investing in businesses with “moats” around their business model. Often that moat is an economy of scale; the notion that a hundred widgets cost a dollar each but a million widgets only a dime apiece.
Obviously that doesn’t apply to software, or music, or other virtual goods. What’s less obvious is that as time goes by, and technology and interconnectivity advance, it applies less and less to the physical world as well. Industrial capacities that not long ago were available only to gargantuan corporations are today open to anyone and everyone. Amazon, Microsoft, Google, and the OpenStack providers compete to rent economies of scale for web services. Foxconn et al essentially do the same for electronics. So what happens when this trend expands into other sectors? What happens when there are Foxconns for furniture, or cars, or houses, or retail stores? And a Dronenet for transporting physical goods?
What happens is that moats dry up, and are bridged, and previously impregnable incumbents start looking very vulnerable to disruption indeed.
But wait. This is all too small. Let’s think bigger yet.
Compare and contrast Intel with ARM. The former is, historically, a vertically integrated design-and-manufacturing monolith which owns and controls everything they do, whereas the latter concentrates on being the best at the one thing they do. I have enormous respect for Intel but it seems clear that the world is trending towards ARM’s more decoupled model, wherein their designs (like TSMC’s manufacturing capacity) are made available to any and all customers.
The logical conclusion of that trend, however, is far more transformative than a mere reduction in optimal corporate size and scope: it’s this–
I might paraphrase that as “property isn’t theft; property is an inefficient distribution of resources.” It signifies a dichotomy between two very different modes of thinking–one where you own things, and one where you just use them, and share them when they’re not in use. This is old news in the tech world, which has been dispersing monolithic dedicated channels into hordes of flexibly routed packets for decades…
Fibers always come in pairs. This practice seems obvious to a telephony person, who is in the business of setting up symmetrical two-way circuits, but makes no particular sense to a hacker tourist who tends to think in terms of one-way packet transmission. The split between these two ways of thinking runs very deep and accounts for much tumult in the telecom world.
— Neal Stephenson, Mother Earth Mother Board, 1994
…but it’s enormously foreign and disruptive, verging on revolutionary, to most everyone else. (Indeed, a whole lot of people have probably just mistaken it for communism. It’s not.)
We’re getting pretty abstract here. Let me pick a particular example: this column by Casey B. Mulligan in the New York Times this week, which concludes that “driverless cars … will increase the number of vehicles on the road.”
It’s a fairly smart piece that suffers from what I call “unidimensional extrapolation,” and so misses effects like the trend I refer to above. Widespread use of driverless cars will inevitably lead to a sharp rise in ownerless cars. A major reason for owning a car is that you don’t need to go get one when you need one. Which sounds like a tautology today, but won’t when shared driverless cars will be able to zoom to your house on five minute’s notice when you need to go to the mall for an hour.
Ultimately, I’m confident that driverless cars will lead to much lower car ownership in urban areas; instead, large numbers of people will have fractional ownership of sizable pools of driverless vehicles, à la Berkshire Hathaway’s NetJets, and just summon them when they need them. This will codify and formalize the running cost of using a car…and since you won’t pay for them when you’re not using them, it in turn will lead to fewer cars on the road.
That’s just one example. More generally, I think it’s hard to deny that both industries (AWS, Foxconn, etc) and individuals (from AirBNB to Zipcar) are increasingly moving towards collective usage of large pools of widely accessible shared resources. Economies of scale as a service, as Aaron put it. So far the effects are limited to specific sectors and domains — but it’s only a matter of time before this wave of change reaches, and profoundly disturbs, entire industries hitherto untouched by its force.
One of my favorite social media platforms is twitter. I’ve connected with so many people from all over the world. The technology is pretty amazing because it provides entrepreneurs the ability to get their products or services in front of people quicker, and go around the traditional layers of media that are out dated and slow.
That’s how I met David Clark, inventor of Kool Clipz. He reached out on twitter and shared his entrepreneurial story. This “bobby pin” on steroids works just like he advertises. My wife talked me into running a leg of the upcoming Akron Marathon, so this was perfect timing. David shipped me some Kool Clipz to try out and in about :15 seconds realized the niche his product was filling. It clips and holds your headphone wires providing a “wireless” feeling. My headphones weren’t flapping all over the place… It really works.
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