The effect of shipping fees on customer acquisition, customer retention, and purchase quantities

The growth of the e-commerce sector has highlighted the importance of shipping fees. We empirically study the effects of shipping fees and marketing activities on customer acquisition, customer retention, and average expenditures using data from an online grocer. We find that shipping fees greatly influence order incidence rates and graduated shipping fees significantly affect average expenditures. The analysis indicates that customer acquisition is more sensitive to order size incentives while retention is more influenced by base shipping fee levels. Furthermore, a profitability analysis suggests that shipping policies that provide incentives for larger order sizes may outperform free shipping promotions and standard increasing fees structures. (c) 2005 New York University. Published by Elsevier Inc. All rights reserved.