Dimensional Weight Pricing: How a “17 pound” feather can affect your ecommerce profit margins
Ecommerce has long been considered to have a cost advantage over brick-and-mortar retailers. After all, real estate, inventory and human resource costs are all lower.
However, these reduced costs come at an expense — Internet retailers rely on a third-party for fulfillment. Which means their margins and perhaps overall business model is at the mercy of other companies.
This dependency became all the more clear recently when UPS and FedEx announced a significant change to shipping policies by applying dimensional weight pricing (also known as DIM) to all ground shipments. This means that the size (length, weight and height) of even lightweight objects could cause increases in shipping costs for ecommerce vendors.
A concrete example of this is The Wall Street Journal estimating a 37% increase in price for a 32-pack of toilet paper and a 35% increase for a two-slice toaster.
At the MarketingSherpa Media Center at IRCE 2015, I spoke with Abe Garver, a contributor to Yahoo! Finance and an M&A (mergers and acquisitions) banker, to discuss how these shipping changes are affecting ecommerce companies. Abe used the example of a peacock feather — which may really only weight six ounces, but due to its large size is considered weighing 17 pounds when calculating the cost of shipping.
In speaking with CEOs at some of the top ecommerce companies, “I’ve heard it referred to as a once-in-a-generation change,” Abe told me.
If your company is impacted by dimensional pricing, here are some fulfillment tips:
1. Evaluate other shipping companies. The U.S. Postal Service proudly advertises that “this change means that our competitors now apply DIM weight pricing to most packages, while USPS only uses DIM weight pricing in very specific circumstances.”
2. Consider outsourcing your fulfillment. Of course, Fulfillment by Amazon is well known, but you could also consider working with a 3PL (third-party logistics provider) like Shipwire, Red Stag Fulfillment, Rakuten, etc. for your ecommerce order fulfillment to leverage volume discounts with UPS or FedEx.
3. Re-evaluate your product mix. Perhaps ecommerce isn’t the most cost-competitive sales channel for products like pregnancy pillows, metal detectors and other lightweight but large items. As Pets.com learned the hard way, even a Super Bowl commercial isn’t powerful enough to overcome a product that isn’t economical to fulfill.
You can follow Daniel Burstein, Director of Editorial Content, MarketingSherpa, @DanielBurstein.
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Categories: Consumer Marketing ecommerce, internet retailers, IRCE
