Consumer priorities shifting from best merchandise price to total transaction cost

[July 25th 2000]

Internet shoppers tend to be driven by one of two rewards -- either the best price on a readily-available item or finding a special something faster than possible by any other means. Where dissatisfaction exists, it usually can be traced to a footnote in the online transaction called "shipping and handling."

Imagine finding the best bargain in the world for an item only to see the savings disappear when shipping charges are added. Imagine ordering a gift for a birthday two weeks hence and receiving the package a week late or not at all. For many shoppers, it doesn't require an imagination, it has happened.

Despite a booming Internet economy, industry analysts such as Forrester Research believe that e-commerce logistics systems are a major barrier to continuing the phenomenal growth rates of the past two years. Meanwhile, savvy Internet shoppers are changing their tactics by looking for total value, rather than the best merchandise price, or for delivery guarantees with backup services for tracking parcels.

In response to consumer gripes about last minute add-on costs, many e-merchants are advertising free shipping or a low fixed rate to any destination. "That usually means shipping costs are bundled into the merchandise price or merchants are taking a loss," says Neal Anstadt, a leading industry authority on automated parcel shipping systems and CEO at GoShip.com, a provider of parcel shipping software to e-merchants. "In either case, it's a temporary fix that will either be overcome by competition or by running out of venture capital or IPO funds."

For consumers seeking to understand what's a shipping bargain and what's not, it's easy to understand the concept but a tough chore to keep up with changes. More than half of e-merchants themselves cannot accurately calculate delivery costs, and computer-based systems are often hard pressed to keep current, even with full-time attendants.

For starters, there are more than 30 highly competitive national and international carriers providing parcel-shipping services to businesses and consumers. Carriers are regulated and required to publish rate schedules that include classes of service and costs based on service class, weight and geographic zones crossed. Carriers also provide and charge for options, such as COD and insurance. International carriers must add taxes and tariffs.

Published rate schedules are mandated in the public interest, but they are so complex few people can understand them in their raw form, much less compare them. Computer application software has been available since the 1970s to fathom the depths of rate schedules, and it would be a rare instance if a manufacturer or distributor did not have a sophisticated logistics system that enabled quick decisions about shipping methods based on customer requirements. However, there has been little effort to develop software oriented to consumer decisions until recently.

The Internet poses a new set of circumstances, according to Anstadt. Logistic systems of manufacturers and large retailers have traditionally viewed shipping in terms of pallets or truckloads, he said. "Their business model does not accommodate shipping one small parcel at a time to destinations all over the world, and they are going through a major re-structuring to conduct consumer business on the Internet."

Then there are the thousands of companies created solely for online selling, as well as brick and mortar stores of all sizes concurrently engaging in e-commerce, he continued. "They are beginners in high-volume order fulfilment and shipping, and most of their resources are consumed by Web site development and promotion."

While growing pains are to be expected, there is little sympathy from consumers who are drawn to online shopping by the promise of low cost and prompt shipment. Their loyalty belongs to merchants that deliver on the promise. With consumer-oriented software now joining the infrastructure of many Web merchants, the tide of discontent may be turning.

Consumers can ask for least-cost routing, but should be aware that least cost usually means slower delivery. They can ask for fastest delivery with the caveat that the cost will be higher. When making multiple purchases, they can select different shipping methods for each within a single transaction. The solution that is best attuned to consumer interests is the opportunity to view a matrix of multiple carrier services and costs in such a way that informed and self-satisfying decisions may be made.

But that's not the end of the shopping opportunity. Rate schedules reflect the maximum charges, not the minimum. Merchants get a wide assortment of discounts based on volume and shipment consolidations, and all or a portion of the savings may be passed on to customers.

One carrier may offer the best zip (origination) to zone (destination) rate to one location and the highest to others. As e-merchants expand their distribution systems to include regional warehouses, the best shipping bargain may be from the merchant with the closest distribution point. Further, improving customer service requires the ability to provide real-time status of shipments and to trace lost packages, and that's part of the total value equation.

"Search engines and shopping bots may find you the lowest price of an item, but not necessarily the best value," Anstadt said. "Online shoppers need to be aware of the wide latitude of merchants to offer fair and competitive total transaction prices, without sacrificing customer service."

Merchants are gaining their latitude though parcel shipping application software, such as developed by GoShip.com that is integrated by e-commerce solution providers into Web site infrastructures. The ease of implementation and low transaction cost leaves little room for merchants to deny customers the element of choice in shipping decisions, in Anstadt's opinion.

For the most part, consumers are not likely to grapple with the intricate details of all parcel-shipping options, but they know what they want from each merchant and each transaction. Now they can be more aggressive in their demands and leave the details to the computers.

Links
GoShip.com		http://www.goship.com