How Do e-Commerce Program Thresholds Affect Sales?

Grocers looking to build household usage or grow transaction sizes and share of wallet should take a close look at their fees and minimum purchase requirements, Brick Meets Click revealed in "Grocery e-Commerce in Supermarkets," a Jan. 11 webinar detailing the firm's latest benchmark study, which included 19 brick-and-mortar grocer banners with an e-commerce program.

David Bishop, a partner with the Barrington, Ill.-based retail consultancy, noted that e-commerce shoppers typically spend much more than the purchase minimum when faced with a fixed service fee. And, when faced with a variable fee contingent upon spend level – or “hurdle” – they often spend even more to avoid paying fees. Based on service fees and purchase minimums, operators fall into three of the four quadrants: those with a fixed service fee and minimum purchase requirement, those with a variable service fee and hurdle, and those with no service fee but a minimum purchase requirement.

For grocers with a minimum purchase requirement, as that required amount increases, so do the corresponding average sales per transaction. Bishop said that this increase doesn't strongly correlate with the purchase requirement, as, in many cases, the spend is almost three times more than the minimum required. What it does show, however, is that as the minimum increases, so does the spend levels.

For grocers without a minimum purchase requirement – which also typically is associated with using a “hurdle” – an average service fee for spending less than the “hurdle” is $4.59. This cost is significantly higher than those from grocers that charge a fixed fee and have a minimum purchase requirement, leaving one to assume the high service fee could be a barrier to having people use the program. This doesn't seem to be the case, though: The average sales per transaction here, Bishop noted, is higher than those from the grocers with both a service fee and a minimum order requirement, suggesting that the majority of shoppers spend more to avoid paying the “hurdle” fee.

“So it does start to raise some interesting questions about how we should look at our various thresholds to [accomplish various goals], like build household usage or increase the transaction size and grow share of wallet,” Bishop explained. “And what we’re seeing is, in some cases, retailers who have a fixed fee and a minimum may be adjusting those upwards to increase those transaction sizes, where, at the same time, we have other retailers who are looking at and evaluating how to increase either their hurdle rate and/or their service charges. I think either way, the point is that program thresholds do impact sales."