I
have to admit I don’t like shipping fees.
When searching and buying online I look for the option that indicates
“free shipping”. Sellers know this;
consumers do not like shipping fees.
With multiple auction sites available nowadays, multiple sellers
offering similar items, and with several online retailers offering low-cost or
no shipping fee, the question of whether or not to charge a shipping fee has translated
into an important concern for sellers.
Authors
Hou and Blodgett discuss this recent topic in their interesting article Do bidders compensate for shipping fees inonline auctions? They indicate that
in order to ensure profitability, a crucial decision for online auction sellers
is whether to charge a shipping fee.
Many items are relatively inexpensive to ship, however some items may
account for a substantial shipping fee. A
vital issue is whether online auction bidders adjust their offers downward to
compensate for shipping fees. If bidders
only partially compensate for shipping charges then profits margins increase;
however, if bidders overcompensate for shipping chargers profit margins decline
(Hou, Blodgett, p. 435, 2012).
A
study by ACNielsen states that about 1.3 million sellers around the world use
eBay as their primary or secondary source of income. Therefore, online sellers want to maximize
profits, but are uncertain as to whether shipping fees harmfully impact auction
prices.
Due
to the rapid increase of online auctions, researchers have been responding
rapidly to the effects of various factors on auction prices. The study conducted by the authors is
designed to clarify this issue by concentrating directly on shipping fees and
their effect on auction prices. This
will clarify some understanding of auction design and consumer behavior.
Their
study included the bidding for monitors and coins. Interesting findings from their research
include:
- The extent to which bidders compensate for shipping fees appears to depend on the type of item (hedonic and unique vs. utilitarian and standard), the availability of similar items, and the magnitude of the shipping charges. Unique items with hedonic value bidders appear to be willing to disregard shipping fees. On the other hand, for standard, utilitarian items that are widely available and are costly to ship, bidders tend to alter their offers downward to compensate for shipping fees.
- Higher shipping fees resulted in fewer bids, which decreased auction prices.
- Although shipping fees might result in fewer bidders, this leads to higher profits because most bidders do not fully compensate for these fees.
- Although auctions with nominal or no shipping fees might attract more bidders, the incremental revenues realized from higher shipping charges outweigh any reduction in winning bid prices.
Paulina
Enrriquez Dominguez
Sources:
Prior to ever selling anything on Ebay, I was a consumer who would only buy items that had free shipping. A year ago I began selling a few things occasionally for my step dad. All the antiques I listed and sold were antiques and usually rather large, fragile items. As I listed each one, he would tell me the details to include and the prices, along with shipping costs as well. I was shocked when I listed a particular item that had a $50 shipping fee attached to the cost that must be paid by the consumer. When the item sold and I took it to the Post office to be shipped I realized why sometimes shipping fees must be included in cost to the consumer and why they are so expensive depending on the item. This item was large, fragile, and quite heavy. Needless to say it actually cost $98 to ship this item and the buyer only paid for $50 of that cost. That brought to my attention how $48 was now being deducted from the profit my step dad was going to make on the item. Now when I buy on Ebay, if I am buying something with a shipping fee I don't mind paying it if the shipping fee is reasonable.
ReplyDeleteThis article definitely makes you view shipping with another point of view and you share a clear example of that.
DeleteI enjoyed reading this article because I have done a lot of buying and selling online, and this concept has crossed my mind as a seller countless times. As a buyer however, I can tell you two things for sure.
ReplyDelete1. I absolutely factor the shipping into the purchasing cost of the item. If the bid is at 99 cents, with $20 shipping, I see that item as a $21 item.
2. I would rather buy an item that is $20 with free shipping, than an item that is $15 with $5 shipping. I don't know why, but it just feels better buying an item with free shipping.
I'm glad you enjoyed the article. And I feel the same way. There is something about free shipping that attracts the consumer.
DeleteI enjoyed reading this article because I always wondered how sellers factored in shipping charges, or determined the prices for shipping. I have never sold anything online but shop online all the time. Especially when buying text books, I would compare shipping prices because for the same book many different sellers could have vastly different shipping charges.
ReplyDeleteI'm glad that you enjoyed the article. I do the same thing. When buying textbooks I mainly look at the shipping costs. Maybe it's the feeling of "paying" less money for the product.
DeleteFrom my experience, shipping fees (specifically on eBay) can be the deciding factor in whether or not people bid on an item. I have sold a lot of stuff on eBay, mostly shoes, and have seen first hand the effect shipping fees can have on an auction. Here's a made up situation to illustrate my point.
ReplyDeleteSay I created a buy-it-now auction (BIN), with a BIN price of $200 and shipping charges of $15. The auction will end and no one will have bought the item. I then relist the item, this time with a BIN price of $215 and free shipping. Because the item gets advertised as "Free Shipping," more people view the auction and ultimately someone will buy the item.
I have had this exact experience on more than one occasion. It is pretty amazing that some people are willing to pay the same price because it is advertised as "Free Shipping." Of course, this kind of thing may have been caused by more people viewing the auction the second time around. However I'm fairly certain that the "Free Shipping" label on these auctions was the deciding factor in my items being sold.
Very interesting article, thanks for posting.
Good point! As you illustrated in your example, this is how things usually work. If sellers want to be successful in selling their items, then they must take these strategies into consideration.
DeleteI agree with your opinion. In my experience on eBay shipping fees do not outweigh the effect one will gain from offering free shipping. I guess it would make a big difference depending on what you are shipping though. It would be easy to offer free shipping on an item such as a coin, where one may incur a shipping cost of $1. Although on something such as a gaming console the cost may be up to $40, and it is probably a safer bet to offer a calculated shipping option.
ReplyDelete