Rethink Your S&H Rate Schedules

If you set your catalog’s shipping and handling (S&H) charges based on competitors’ rates, industry standards or consumer acceptance, you may need to update your strategy, say officials of The Direct Marketing Association (DMA). This is especially true for your online orders.

Here’s why: Today’s consumers are more knowledgeable about S&H charges, and some even have won class-action lawsuits against companies that they think overcharge.

To combat this consumer backlash against high S&H rates, The DMA advises the following when devising fees:

• Make them reasonable. “You must be able to clarify and justify to consumers that your S&H rates have some reasonable relationship to your real expenses. Those also are the concerns of regulators,” warns Patricia Faley, vice president of ethics and consumer affairs for The DMA.

• Know what costs you’re trying to recoup. Faley says customers understand that merchants must recover direct costs, such as postage, packaging materials, even outbound distribution labor. But they often don’t understand why indirect costs such as call center, order processing and credit card service charges are included.

George Isaacson, tax counsel to The DMA’s Sales and Use Tax Committee, says if you’re including indirect costs, then you really can’t call them S&H fees. “You should call them, perhaps, shipping and processing charges,” he notes.

• Do a fulfillment-cost study, especially if you’re unsure what expenses you should be recouping in your S&H charges, says Isaacson. Look particularly at how you’re allocating your cost centers to your S&H price schedule.

“You can have the study done by your internal auditing personnel, or hire an outside consultant,” Isaacson advises. “Oftentimes, a consultant will understand the auditing process better and may be more credible if you’re contacted by outside litigators.”

• Give early and clear disclosure, especially for online orders. In your print catalog, it’s easy for customers to see S&H charges before they order. But many online sites don’t reveal S&H rates until after the customer has offered confidential information such as a credit card number and address. “From a consumer’s perspective, that’s problematic and annoying,” says Isaacson. “And in fact it’s the No. 1 reason for online cart abandonment, according to studies.”

Faley says consumers want clear disclosure “early enough in the online-selling process to feel good about the shopping experience.” One good way to accomplish this is to put a calculator for S&H charges on your site. Each time customers drop items into their carts, they can easily recalculate S&H rates.

• Be fair. Look at how you allocate aggregate S&H charges across your customer base. Is it devised fairly? For example, if you’re not charging S&H to business customers, is that fair to your consumer base? Also, if you’re using an S&H pricing structure that’s based on product prices, you may be severely overcharging customers who buy lightweight but expensive merchandise such as jewelry or high-end apparel.

“You don’t need to be 100-percent accurate on every item you ship,” Isaacson sums up. “But your charges should be fair, reasonable, justified and approximate to your actual costs.”