The High Cost of Free Shipping

Any lingering doubt that we have graduated fromE-Tailing 101 has dissolved over the past few months.

In the real-world laboratories of E-Tailing 303, the freeshipping experiment marches on. Most recently,Buy.com announced it willwaive shipping charges on orders over US$99 that weigh less than 20 pounds.

Indeed, shipping deals are the incentive du jour among e-tailers these days.

But the formula for shipping success is still anenigma. And shipping freebies are not likely to work forevery e-tailer, or for every shopper.

Target Practice

I am not surprised to see this wave of shippingbargains. After all, 63 percent of online buyersconsider high shipping and handling charges adeterrent to online purchasing, according to JupiterMedia Metrix.

E-tailers are taking aim at the shipping target with a variety of different promotions.

BarnesandNoble.com (Nasdaq: BNBN) offers free shippingon orders of two items or more. Amazon (Nasdaq: AMZN)shoppers qualify for “Super Saver Shipping” when theyspend $99 or more on items other than toys, videogames, baby products and third-party goods.

Buy.com throws weight restrictions into the mix, and similar deals also abound at FreeShipping.com.

Restrictions Apply

As always, e-tailers want to attract more shoppers who spend moremoney at more frequent intervals. Will free shipping do thetrick? Perhaps for some merchants, but not for all.

For one thing, many e-tailers cannot afford to offer free shipping on a grandscale. Even with standard shipping charges in place,45 percent of merchants lose money on shipping andhandling, according to Jupiter Media Metrix.

This fact helps explain the fine-print restrictions on volume,price and weight. After all, e-tailers are still gunning forprofitability, too.

Volume Control

What is more, free shipping will not convince many shoppers to pump up their order total.

For example, Jupiter Consumer Survey data shows thatjust 3 percent of online buyers regularly increasetheir order size to save money on shipping and handling.

This figure does not bode well for e-tailers that are countingon spikes in order volume and value to offsetthe cost of offering free shipping.

Weighing Options

There is no question that limited-time free shippingoffers can fuel online sales spurts. For example,Toys “R” Us (NYSE: TOY) enjoyed a 300 percent annualsales increase as a result of its 2000 holiday shipping promotion.

But it is still unclear whether e-tailers canprofitably waive shipping fees over the long haul.

Buy.com’s combination of price and weight restrictionswill probably make the most sense to consumers, becauseshipping costs typically are calculated based onweight and distance.

So, for an order that weighs less than 20 pounds, $99 just might coverthe item’s cost and most, if not all, of the shippingcosts, depending on the buyer’s location.

Perhaps Buy.com’s experiment will pay off andcontribute to the company’s ongoing effort to revitalize itself.

Fine Print

Shipping deals based solely on price or volume, on theother hand, come across as marketing ploys, which manyconsumers will detect.

And the fine print makes it very clear how some e-tailers cut other services to make freeshipping affordable. For instance, according to Amazon’s freeshipping terms, orders may take an additional three to fivedays to arrive.

Consumers would be well advised to benchmark in-store bookand CD prices in coming months, then watch to seewhether Amazon or BarnesandNoble.com start recoupingshipping costs by inflating price tags.

Cash Flows

The fact is that consumers are getting smarter. When theyhear that 45 percent of merchants lose money onshipping, they correctly conclude that more than halfare breaking even or making money.

And e-tailers’ bottom-line watchers no doubt haveensured that their shipping promotions will notsignificantly dent their overall financial status.

So, be wary of shipping bargains and be careful aboutspending extra money or going out of your way toqualify for such deals. Because one way or another,e-tailers will profit from your efforts.

10 Comments

  • it seems to really become a hype giving out free shipping nowadays. I do understand the concept behind it, since it makes the customer feel like a conventional everyday shopper where -almost- never any shipping costs have to be paid. A site I regularly use is fws24.com It lets you see all free shipping products immediately without having to go first to the retail shop and look for them.

      • Kerri – I can see why you would be frustrated by seeing a steady stream of deals that don’t apply to you because of where you live.

        On the other hand, realistically, there are so many added costs for a shipper to ship from country to country and continent to continent. Aside from the added postage, the paperwork often needed for customs can be a real burden. It’s no wonder that etailers have to charge more to ship to a different country, if they’re willing to do it at all.

        You’re right though… When selling on the web, companies have to remember that their offers can and *will* be seen by people all around the world.

        • Thanks, and a good point made about the additional costs involved in shipping to other countries.

          Sadly, my credit card is all too aware of the additional costs of shipping to Australia, but it is certainly true for me – if I want the product badly enough, I’m prepared to pay more for it.

          However, with the great variations in shipping costs, and the inability of companies to offer shipping specials to ALL their customers, free shipping will die off. Companies will eventually wake up to their true customer base and replace shipping deals with specials that are attractive to ALL their customers.

  • Of *course* retailers will still profit from customers’ efforts to maximize their savings! That’s why they offer the savings in the first place. But this does not preclude the possibility of *consumers* profiting from their efforts, too!

    Vigoroso seems to have forgotten that the beauty of a free-market exchange is that *both* parties profit, and this condition provides our very definition of “productivity.” Trade *creates* wealth; it doesn’t merely redistribute it from one party (the consumer, or the victim) to another (the business, or the evil corporate empire). Not every appealing offer is a sleight of hand, and consumers are smart enough to figure this out, too.

  • As a retailer who is thinking about e-tailing, free shipping scares me. Shipping can AM ount to 10% or more of the cost of an item. Because of that, free shipping in many cases will probably be a thing of the past. The name of the game for us is making money (as it is for any other business). We simply can’t do it by giving away shipping on every sale. We might be able to do it for “best” customers, over a certain $ sale, or in some other special situation. For the everday sale, though, shipping should be added.

  • Just as an aside …

    I think the days of free shipping are coming to an end, but perhaps for a slightly different reason.

    As an Australian who shops frequently from US and other overseas websites, I get cheesed off with the overseas companies, who send me endless emails saying “FREE SHIPPING” in big print and then “in US and Canada only” in the very small print. (Some companies don’t even bother to say that, as I found with a big Canadian online bookstore that emailed me with free shipping offers, but, as it turned out from trial and error at the point of sale, only to Canadian addresses. My Australian address brought up an error message, but when I entered a fabricated Canadian address it happily accepted! Very, very bad customer service!)

    I wait for the day that online stores realise the true extent of customer service on the net – if they are selling something on the net, then they are selling globally, not just to “US and Canadian address only.”

    If you are offering a special deal of some sort on the net, then you had better be offering it to ALL your customers, else your customers are going to go elsewhere. You tend to get pretty annoyed when you see everyone else enjoying a continual stream of special deals, while you get ignored for no good reason except that you don’t live in the “right” area!

  • I do not wish to show disrespect or have this email seen as a personal attack on the writer, but the prior feedback is one of the dumbest things I have ever read.

  • Regardless of the cost, if e-tailers want to attract more shoppers who spend more money at more frequent intervals, they must understand that shipping’s counterpart — *receiving* — is equally as important. Specifically: If nobody can be home to receive delivered goods, then there’s a 78.6% probability that they won’t even order in the first place!

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