There isn’t a day that goes by when we don’t hear or read about how inflation affects consumers.
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The question is, how does this impact micro and small businesses that sell through an online marketplace or their own website?
ShipStation, a popular cloud-shipping platform for online merchants, released a report today that showed some surprising data for small businesses and offered areas on how to improve your business.
The company created the report from multiple sources to bring as much insight into consumer and merchant trends to help sellers develop their sales and marketing strategy.
More than 8,000 households in the U.S., UK, Canada, Australia, Germany, France, Italy, and Spain participated in a survey conducted by consultancy Retail Economics, providing a global consumer perspective to ShipStation’s report.
In addition, ShipStation analyzed insights from two surveys conducted by its parent company Auctane, which included responses from 1,000 American consumers and 300 merchants.
Let’s take a look at the highlights of what the ShipStation report found and what it means for American small business owners and marketplace sellers.
While online inflation has been easing in the U.S. over the past six months, 64% of American consumers still consider inflation their biggest concern in 2023.
Among consumers in the surveyed countries, inflation will have an estimated impact of $319 billion this year, with Americans bearing the brunt at $219 billion.
Despite this, the United States has the most optimistic economic outlook for 2023, as inflation is forecast to reach 3.5%. Meanwhile, Canadians are expected to see inflation reach 4.1%, making the two North American consumer powerhouses the most bullish among all eight countries surveyed.
At the other end of the spectrum, ShipStation found that Germans (8%) and Brits (6.6%) will continue to suffer significantly from rising prices this year. The war in Ukraine is certainly not helping bring prices down in Europe and without an end in sight, it may have a longer lasting effect on shopping behavior in Europe.
Back to focusing on American consumers, 66% said they would change their buying habits this year as a result of inflation, with 31% saying they plan to only make necessary purchases. 26% of Americans even intend to delay or reduce purchases, and 9% will seek cheaper brands or retailers.
The good news for online merchants is that 23% of American consumers say they intend to shop online more than they currently do, and 81% intend to support small businesses. Over one-third (35%) are even willing to make sacrifices to shop at small businesses.
The top-level data from this survey suggests that U.S. small business merchants and marketplace sellers have an opportunity to gain from the current economic climate.
But delivery experiences are going to matter, which means online sellers will have to adapt their policies and offerings to meet consumer expectations.
60.9% of surveyed consumers said that high shipping costs will make them less likely to shop again with a brand or online seller.
This is probably not a big surprise for business owners. However, it highlights again how merchants have to adjust their pricing strategy to attract buyers by not making shipping costs a major obstacle to sales.
Still, as much as shipping charges drive purchase decisions, other factors are nearly as critical. Poor packaging (56.2%), lost packages (45.2%), and a difficult return policy (44.1%), can all kill repeat sales quickly.
In addition, nearly 1/3 of shoppers cite late deliveries (31.5%) and lack of tracking information (31.4%) as likely reasons not to buy again from the merchant.
So, how do online merchants and sellers attract and keep buyers in 2023?
ShipStation identified three key drivers of business growth this year, which include:
- Save on shipping costs
- Improve the delivery experience for customers
- Streamline & expand operations
The ShipStation report offers several suggestions on how to tackle these challenges. In a nutshell, it boils down to using dedicated shipping software and adding more carriers to your delivery services mix.
This enables shippers to make comparisons among more carriers with a broader mix of delivery options and potential savings to the merchant, especially if offering free shipping.
But there are other ways to save. If you ship expensive items, third-party insurance versus carrier insurance can save shippers money, and packaging can make a huge difference as well.
In some cases, changing packaging to use a carrier’s one-price (flat rate) shipping option could be a game changer. Both USPS and FedEx offer these services.
Excess packaging can also trigger dimensional weight on lightweight items, making them pricier to ship. Just one inch in one direction can make a huge difference in cost in some cases.
And improving workflow can reduce hidden costs, even for a solopreneur who can now take the newly found time to concentrate on building their business, instead of “working in” the business.
Another big topic the report dipped into was returns. ShipStation found that returns continue to rise, with the return rate increasing by 20%, compared to 2021. Again, probably not much of a surprise here, but one that needs the attention of online merchants as it increasingly affects conversion.
81% of consumers believe returns should be free. This is up from 74% in 2021. And 67% said free returns would improve their likelihood of repeat business with the merchant.
This last data point is the most relevant to consider. It requires extensive (and expensive) effort to get one new customer.
Keeping that customer by offering excellent customer service is often less expensive than marketing to new customers and if that means offering free returns, it’s a major decision factor now that merchants need to consider.
“Now, free returns are an expectation, and the consumer need for free returns is growing,” said Krish Iyer, Vice President, Strategic Partnerships & Industry Relations at Auctane, the parent company of ShipStation.
“In some ways, this makes sense – consumers have to do quite a bit more work when returning a shipment, whether it is initiating the return itself with the retailer, printing the shipping label, finding packaging, scheduling the pickup or dropping off the package.”
By offsetting the effort from consumers to return a package through free shipping, it demonstrates to the customer that the merchant cares about their satisfaction.
There will be return scams from customers. However, just like a retail business that has to deal with inventory loss from theft, that is part of doing business today. Online sellers should include this cost factor in their pricing strategy.
The importance of offering returns cannot be overstated, with 22% of merchants still not allowing returns at all. A whopping 66% of online sellers do not currently offer free returns, and 18% of merchants are restricting or cutting back on free returns to offset rising costs.
“Although eliminating free and flexible return policies is meant to cut down on fraud and manage costs, this does not help manage the lifetime value of the customer who won’t return to shopping with the brand itself,” warned Iyer.
To emphasize ShipStation’s findings, micro and small business sellers may want to look at free returns as a marketing expense, not a shipping cost. The data shows it has become that relevant to consumers, and paying for a few returns can bring long-term gain.
Your competitors may be offering free returns and that could be a reason for sluggish sales or lack of business growth.
Increase Sales Channels to Drive Growth
While the ShipStation report primarily focused on shipping, it also looked at the importance of selling channels for small businesses to grow their sales.
Merchants reported that this year they plan to increase their activity on social media channels to attract the rising number of shoppers on these channels. But it is critical to pick the right social media apps to match the demographics of buyers.
The report found Gen Z is more likely to shop on Instagram and TikTok. As controversial as TikTok may be due to its Chinese ownership, younger people have gravitated towards it, away from many other well-known channels.
Instagram is also favored by younger users, but there has been a development recently that is not considered in the ShipStation report.
Meta, the parent company of Instagram and Facebook, announced they are shifting their focus away from integrated ecommerce, and instead hoping brands will increase advertising on Instagram to drive ecommerce sales.
What impact this may have on buying behavior is unclear. Therefore, TikTok could be the most relevant shopping channel for Gen Z moving forward.
Moving away from Gen Z, almost all other demographics continue to favor Facebook. 50% of surveyed merchants plan to sell this year on what is still the most popular social media platform globally.
Unless your buyer is Gen Z, Facebook is the place to be!
While ShipStation’s report also found that shoppers were using Snapchat and Pinterest (both under 20%) to initiate online purchases, less than 19% of merchants surveyed said they were planning to use Pinterest. Snapchat didn’t even make the list.
Pinterest may be the dark horse here as they’ve been placing a lot of emphasis and launching new tools to help merchants succeed on their platform.
Another section of the ShipStation report looked at international shipping. A staggering 65% of merchants did not expand internationally last year and do not plan to do so this year.
“Successful merchants in the U.S. understand that revenue growth can be as easy as allowing access to customers outside the U.S.,” said Shea Felix, General Manager of GlobalPost, an Auctane company.
“Statista found that the average order value of an international sale was $147. That’s 17% higher compared to an average domestic sale,” added Felix.
International shipping can seem daunting for micro and small business sellers. But it’s a huge opportunity worth trying.
There are new requirements for shipping to Europe mandated by EU law, which require better descriptions on customs forms, but that should not be a big hurdle.
Depending on the product and destination though, some EU countries have packaging mandates that must be followed. Small sellers on marketplaces are often included to follow these requirements as well, as shown in this example from Etsy about sending items to Germany.
Therefore, solopreneurs may want to start out with the low-hanging fruit first by offering to ship to Canada.
It’s relatively simple to ship to Canada, and many Canadians are used to buying from the United States.
The ShipStation report also found that Canada was generally the first cross-border trade country merchants picked when expanding their business internationally. This could mean competitors might already be shipping to Canada, resulting in lost sales right now.
Canada was followed by Europe, which boasts another consumer group that is ecommerce affluent and proficient when making purchases online from overseas. But as mentioned, may require a little more research.
Australia, Mexico, South America, and the Caribbean are also very good opportunities as well. Of this group, Australians (and New Zealanders) typically are very savvy in buying from other countries, making them the best group to expand into that region.
Bottom line, Cross-border trade is a growth opportunity for American sellers, and one many shouldn’t shy away from, even if it’s just expanding to Canada first.
The ShipStation Report
We believe this latest ShipStation report offers valuable insight into how micro and small business owners can tackle the current economic climate.
There are opportunties out there for growth and some challenges that need to be considered to stay in step with today’s consumer demand.
We highlighted specific topics from the ShipStation report that we saw as the most relevant for micro and small business owners. However, the report offers so much more detail for business owners to digest and help them guide their business strategy this year.
Download the ShipStation report for free here.
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