July 07, 2015

Free Shipping

Catalogers have a serious challenge (well, there are many, but let's focus on one of them today).

Let's consider an online business ... one that has a $100 average order value ... one that has a 15% ad-to-sales ratio ... one that gives away free shipping at an average of $10 per order. In total, 25% of sales is consumed by advertising costs and free shipping expense.

Let's consider a catalog business ... one that has a $100 average order value ... one that has a 25% ad-to-sales ratio ... one that charges (on average) $10 for shipping costs ... thereby offsetting the $10 fee to ship merchandise. In total, 25% of sales is consumed by advertising costs and the net of shipping income/expense.

Which business has an advantage?

Free Shipping is a key driver in two of our mega-trends.
  • How will we find new customers in 2020?
  • How will we avoid paying tolls?
Make no mistake - free shipping (as of today) is a toll we place upon ourselves. Catalogers operate at an enormous disadvantage - unable to offer Free Shipping on a consistent basis because of the onerous costs of catalog marketing.

The smartest of catalogers will eliminate a large portion of catalog marketing expense, so that the smart cataloger can offer free shipping, thereby becoming more competitive (and growing sales) in the process. Something needs to be given up, in order to gain a competitive advantage. What will need to be given up, of course, is break-even (or worse) catalog marketing activities that do not pay dividends.