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Online Merchants Testing Subscription Shipping Programs

October 28th, 2010

We all know that attracting new customers is much more expensive than keeping existing customers happy. For one thing, you don’t have to advertise to existing customers. In fact, through word of mouth, they’ll advertise for you. Loyal customers buy more, they buy more often and they’re usually willing to give you the benefit of the doubt if, say, a delivery accidentally goes astray.

But gaining those loyal, repeat customers is difficult for e-commerce merchants. There are so many online options to choose from, and a low price on another site can easily attract an old customer away. To avoid price wars while increasing customer loyalty, many online retailers are beginning to offer subscription shipping programs.

What Is Subscription Shipping?
For a monthly fee, subscription shipping programs allow customers to ship unlimited items without paying additional charges. This type of program is particularly attractive during the busy holiday season when people are purchasing multiple gifts for friends and family members. The more a customer buys, the more mileage he gets out of that upfront, monthly fee.

Amazon.com pioneered this approach a few years ago when it launched Amazon Prime, a program that offers unlimited two-day shipping on all items—no minimum purchase required—for just $79 a year. An analyst from Goldman Sachs estimates that Amazon Prime customers spend three to four times more than a typical consumer, due in large part to their desire to get the most out of their $79 fee.

Some online retailers get nervous about subscription shipping programs because they fear they’ll lose too much money on shipping. However, customers have come to expect free shipping, particularly when they make large purchases, and if one merchant doesn’t offer free shipping, they’ll find another one that does. By offering the illusion of free shipping, subscription shipping services can help you attract customers while at the same time providing a guaranteed revenue stream that offsets shipping costs.

ShopRunner Becomes New Kid on the Block
To compete with Amazon Prime, a number of U.S. retailers such as Babies ‘R’ Us, Barnes & Noble, Dick’s Sporting Goods, GNC and more have formed their own subscription shipping service called ShopRunner. The ShopRunner service also costs $79 and offers unlimited two-day shipping. Unlike Amazon Prime, it allows customers to make free returns.

For customers, the benefit of a program like ShopRunner lies in the fact that it doesn’t handcuff them to one online retailer; they can buy—and ship—unlimited items from any company that participates in the program. Although each participating company is responsible for shipping its own products, membership revenues and shipping costs are shared amongst ShopRunner’s network of retailers.

Easy Shipping = Increased Sales
Regardless of how ShopRunner fares against Amazon Prime, it’s clear that offering customers fast, easy and affordable shipping options is a differentiator for online retailers. Even if you’re not ready to jump onto the subscription shipping bandwagon, it’s certainly a good idea to examine your current shipping practices and assess whether there are simple improvements you can make to boost your sales during the upcoming holiday season.

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