Setting S&H fees Aug 1, 2007 12:00 PM
, By Heather Retzlaff
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When it comes to shipping and handling fees, one thing is clear: Consumers expect to pay a fair price for the delivery of their purchases. But they don't want to do any work.
They will no longer slave over a calculator and weight distance table to determine shipping fees and write a check for the amount. Instead, they expect simple shipping grids in catalogs, automatically calculated rates refreshed as merchandise is added to online shopping carts, and rock-bottom handling fees — or they're going to a competitor.
So how do you set S&H fees?
Mailers used to base them on weight, and some still do. For example, Carson's Wrapped Hershey's Chocolates takes the heft of its candies into account. But most firms have shifted to value-based rates.
This makes it “easier for the customer to calculate the rates — and to know what they're paying before they've committed to ordering,” explains Jim Harkins, principal at catalog consulting firm JJH Direct Marketing.
To determine the overall S&H S&S&Hrequireme revenue they want or need, most mailers now look at their direct and indirect order processing costs (call center, distribution center labor, and materials) and actual shipping expense. Then the creativity begins when they set the minimum and maximum charges, the number of breaks in the S&H table, and what those breaks will be, Harkins says.
If you sell direct, be direct
Guild.com, a marketer of home decor items, finds that being upfront about shipping charges is the only way to keep customers happy. Guild.com sells artwork made by 700 artists across the U.S. and Canada; its vendors drop-ship the finished pieces directly to customers.
“Our shipping charges are set and displayed at the item basis, so the buyers know when they order exactly how much the item will cost to ship; it isn't a surprise at the end,” says Michael Baum, Guild.com's president. “If a consumer orders three items in a single order, it's very likely they'll be made by three different artists and therefore come from three different locations. We can't save shipping by packing them together, so it's very important for us to try to get our individual shipping charges right.”
Carson's Wrapped Hershey's makes it a point to explain why it charges different amounts when shipping to California vs. Indiana, says Scott Frederick, president of sales and business operations. The company includes a chart with recommended shipping options based on the time of year, destination, and speed of delivery. It also explains on its order page why the company recommends those shipping choices.
The cataloger's product line will melt in warm weather when in transit for more than 48 hours, even though it's packaged in an insulated cooler with a frozen gel pack at its Fairfield, OH, distribution center. So Carson's encourages customers in locations outside its two-day delivery zone to select expedited delivery. “Certainly the cost for air mail is significantly more than ground,” but it's a matter of communication, Frederick says, adding that for a $100 order, two-day air delivery can be $25. “If they understand the reason, we find it's not an issue.”
Matthew Schaefer, a partner at law firm Brann and Isaacson, says descriptions of S&H charges should be consistent in each location in which they're listed, including the terms used such as “shipping and handling” vs. “our shipping charge.” Shorthand descriptions “tend to give fuel to the fire for those who want to portray a direct marketer's delivery charge as being either unfair or deceptive,” Schaefer says, adding that the bigger risk is from private class-action lawsuits rather than public officials.
For example, in 2002 continuity music club marketer Columbia House was hit with a class-action lawsuit accusing it of charging its members an “excessive” amount of shipping and handling charges. Columbia House ultimately substituted the phrase “shipping and processing” for “shipping and handling,” because “processing” presumably encompasses more than its actual out-of-pocket costs directly related to packing and shipping the transaction. The settlement, which also included a $5 million attorneys' fee award for the plaintiffs' counsel, likely raised the profile of the issue with direct marketers, says Schaefer.
Similarly, in 2002 a lawsuit was filed against Web marketer Buy.com alleging that its flat-rate “shipping fees” of $1.95 for DVDs, CDs, and cassettes, and $3.95 for videos, games, and books were inflated and exceeded its actual costs. After a fair amount of press coverage, says Schaefer, the case was settled in 2003 when each customer received a 10% discount and free shipping on his or her next order of entertainment products, up to $100.
How transparent should you be about your S&H charges? Schaefer advises his direct marketer clients to ensure that their disclosures are in line with the costs they seek to recover through their delivery charges.
“Even though there has not been a high profile settlement or judgment for a year or so, recent court cases have tended to validate the plaintiffs' theory of liability (that consumers view delivery charges as a pass through of actual costs, and anything more is excessive/deceptive), absent strong disclosures,” he says. “Consequently, conspicuous and accurate disclosures by a direct marketer to its customers regarding the nature of its delivery charges are ever more important.”
Know and document your costs
This may seem simple, but direct marketers need to know what their actual order processing costs are and document them. Harkins says not doing so could have serious implications in a class-action suit against the company.
Schaefer agrees. Many direct marketers don't have a good handle on the relationship between the shipping charges they impose and the costs related to delivering products to the customer, such as carrier charges, picking and packing labor, and packaging materials. “It's a good idea to have an understanding of your cost structure and how that relates to your charge and your description of your charge,” he says. And although direct merchants are not legally required to keep records of how much S&H costs them, it can benefit them in the event of a lawsuit. “If disclosures are full, it's harder to represent and make the case that you have deceived or unfairly imposed a charge that they were going to pay,” says Schaefer.
