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Shipping and Pricing

Disciplines > Marketing > Pricing > Shipping and Pricing

Shipping as profit | Shipping at cost | All-in pricing | Free shipping | Truly free shipping | See also

When you are selling online or by post, how do you price for shipping? While you may not make any money on it, to your customers may seem to be

Shipping as profit

A simple principle is to charge customers more for shipping than it costs you. This can be cloaked by talking about such as 'post and packing' or 'shipping and administration'. Note than in these, the obvious cost is put first to get attention and acceptance, then the vague 'extras' are added after.

A question in this is how customers interpret shipping costs. Notably, they close on the product price and are hence likely to pay less attention to shipping costs. However, if shipping seems unusually high, they may feel they are being deceived, back out of the deal and never do business with you again. A factor in this decision is the price of shipping as compared with the price of the product. If the shipping price much smaller than the product price then it may not be noticed. If, however, it is a significant proportion of the product price, then it will probably be examined more closely.

Shipping at cost

A simple approach is simply to charge for shipping at the same price that it costs you. if others do your shipping for you, this is easy to calculate as you pass on the costs. When you do it yourself, you may want to include the cost of your own time, which can be more difficult to assess.

This is perhaps the most honest approach and you can add comments to this effect, explicitly saying you are simply passing on costs and not making a profit from shipping. In this way you gain the benefit of customer closure on product price without

It can be a problem when postal charges are relatively high, typically when you are shipping something heavy, valuable or to a distant place. When shipping charges are relatively high, even when they are honest, customers will pause to calculate the true cost to them of the product and hence may decide not to buy.

All-in pricing

A problem with charging shipping is that it adds complication, not just for you and how you bill the product, but also for the customer who may go elsewhere rather than try to calculate the total cost to them. A simple alternative is to give them a 'price, including delivery'. In this way, shipping costs may be cloaked, avoiding customer concern about this addition. It can, however, make the price seem high, although only if the customer has an alternative offer to hand with which to make a comparison.

Free shipping

A variant on 'all in' is to declare shipping as 'free'. Of course somebody has to pay for shipping and it either has to be the customer or you. If customers are not that price-sensitive or you can manage their perceptions, you can hide shipping in the price. The effect of the power word 'free' is so strong that it can overcome attention to price.

Of course in any form of pricing, competitive concerns may be important (or not, and it is important to know which). If, for example, you are selling online and competing with local suppliers, your total price, including shipping, may need to be competitive. A lower price may mean lower profit, though quantity and the economies of scale you may be able to achieve may more than offset this.

See also

Profit Pricing, Cost-Plus Pricing