How Prepaid Shipping Benefits Consumers and Retailers

For decades, direct marketers enjoyed a steady (and quite profitable) revenue stream of shipping and handling charges. Free shipping, though an indisputable deal-closer, was typically offered to consumers only as a special promotion. E-commerce changed all that.

Today, every retailer with an internet presence is a direct marketer. The audience has grown exponentially, and new prospects view free shipping as a major factor in their purchase decisions, often abandoning their carts when high shipping charges appear at checkout.

Absorbing shipping costs on a mass scale can stress any operating budget, so retailers have been searching for the best ways to balance these expenses against higher abandonment rates. A few companies, including Amazon.com and Sears, have found solutions via pre-paid shipping programs. These programs charge consumers an up-front fee that helps fund ongoing shipping options and keeps consumers committed.

Many retailers remain apprehensive about pre-paid shipping solutions, but Amazon Prime's success validates the model. Prime customers spend 130 percent more than non-Prime customers; customers more than double their order frequency after joining the Prime program; and comScore found that 80 percent of Prime customers are very or somewhat satisfied with the program, which strengthens Amazon's brand loyalty.

Any free shipping offer can be extremely effective. According to Compete, 90 percent of shoppers say that free shipping would encourage them to buy more products online, and Shop.org found that 70 percent of consumers have increased their basket size in order to receive free shipping. In fact, the power of free shipping is so obvious that there's already a "holiday" for it.

While a limited-time or threshold-based free shipping offer may be a worthwhile promotion, an ongoing pre-paid shipping program spreads shipping costs more evenly between the retailer and its customers, and it gives those customers a strong incentive to choose that retailer over less charitable competitors over and over again. Pre-paid shipping programs benefit both the retailer and its customers in several ways. Consider the following: