Is Free Shipping Really Free?

MINNEAPOLIS (WCCO) — When we shop online, our expectations have changed. We want our goods now and we want them to be delivered for free.

“You said it – the ‘A’ word,” says Daphne Carmeli, CEO of Deliv, a delivery service that has partnered with Best Buy. “Amazon has changed everything.”

In its 2016 Pulse of the Online Shopper report, UPS says consumers rank free shipping as the most important option when checking out online. It’s become so important that half the time shoppers abandon their carts, it’s because the shipping costs made the total more than they expected.

On Monday, Best Buy announced it will offer free shipping for all purchases up until Dec. 25. Target said last week it wouldn’t charge for delivery until Dec. 23. Both companies have offered free holiday shipping in the past.

“Shipping is becoming a much bigger issue for e-commerce stores,” says Jake Rheude, director of marketing for Red Stag Fulfillment. “There’s a balance between how do I get the cheapest shipping versus how do I get it to customers in their expected time frame?”

Even though retailers negotiate discounts with shippers, shipping costs are among the highest expense after the cost of the goods themselves. In this environment, experts say free shipping has become close to a requirement for retailers to compete.

“You have to be able to make the headline stick that you’re offering free shipping,” says George John, a professor of marketing at the Carlson School of Management.

To be able to offer free shipping costs a company. John says the retailer could make that up by increasing prices on non-headline items, making returns more strict or absorbing the costs in business with already small margins.

“It definitely has to be paid for somewhere,” says Jeremy Bodenhamer, CEO and co-founder of ShipHawk. “It’s hard to believe a company would universally raise prices, but want to make up the difference in volume.”

Studies have shown people will choose where to shop based on the availability of free shipping. And, some experts say the expectation of free shipping now will eventually become free, same-day delivery. According to one study from Deliv, same-day free delivery increased order volumes.

“Free same-day shipping is good for business,” says Carmeli.

More from Heather Brown
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