What is the maximum permissible shipping cost in e-commerce?

In the highly competitive online retail sector, free shipping and returns have become crucial marketing tools, not least for attracting customers and subsequently fostering customer loyalty. "SMEs, in particular, are faced with the decision of whether and how much to charge their customers for shipping and returns," explains Rainer Neuwirth, Head of the E-Commerce program at FHWN.

To determine willingness to pay for shipping and returns for online purchases across different industries, a two-part research study was conducted over nine months as part of a master's thesis at the Wieselburg campus of FHWN Wiener Neustadt.

Key finding: Factors such as flexibility, punctuality, and transparent communication during the delivery process positively influence the customer shopping experience. It is therefore recommended that customers be given the option to choose between several shipping providers. Furthermore, it is important to make the delivery process transparent and traceable for customers.

"Hiding shipping costs in the product price is not a good idea"

"Even if retailers decide to always offer free shipping and include the shipping cost in the product price, they should ensure that the total price does not significantly exceed the product's value, otherwise – aided by price comparison websites – customers will simply shop elsewhere," reports Neuwirth, highlighting the study's key findings. The free shipping then fails to compensate for the negative impact of the high product price on customer confidence.

The analysis of the collected data allowed researchers to determine both the optimal price customers would be willing to pay for shipping and returns, and an acceptable price range. The optimal price is the price at which customer dissatisfaction with paying for a product or service is minimal. The acceptable price range, on the other hand, defines the price range within which it should fall to be at least acceptable. “This also depends heavily on the average order value and therefore also on the industry,” explains study author Cotes Freyle Maria Jose. For example, the optimal shipping price for furniture (average order value: €215) is ten euros, while for books (€23) it is only two euros.

Furthermore, it is recommended that the shipping costs should be approximately the same as the transport costs that a shipping company would charge its customers, so that end customers do not get the impression that retailers are trying to make an additional profit. “Customers are much better informed about prices now than they were a few years ago,” says Neuwirth.

Fast delivery increases willingness to pay

The first part of the study consisted of a systematic literature review to determine how customers perceive different shipping policies and how these influence purchasing behavior. Challenges in returns processing were also identified. In the second part of the study, an empirical investigation was conducted using Van Westendorp's price sensitivity method to determine at what price a product or service—in this case, shipping and return costs—is perceived as too cheap, reasonable, expensive, and too expensive.

To determine which factors contribute to a higher willingness to pay among buyers, respondents were also presented with an agreement scale. This shows that fast delivery, in particular, increases willingness to pay.