Photo: Unsplash / Maarten van den Heuvel
Is Free Shipping A Thing of the Past?
Free shipping has gone from an exciting perk to a customer expectation over the last few years, in no small part due to Amazon.com. Now, thanks to inflation and spikes in shipping costs, retailers including Amazon are dialing back free shipping policies to maintain profit margins.
Amazon, which was once able to eat the costs associated with free shipping through a combination of Prime subscription dollars and profits from other divisions like AWS, is increasing minimum purchase thresholds and adding fees on some of its more speed-oriented delivery options, according to Reuters. Amazon Prime members in municipalities with free same-day shipping, for example, must pay $2.99 for shipping on orders smaller than $25.
Others including Foot Locker, Zara and Abercrombie & Fitch, are making cost-saving alterations to their free shipping schemes. Digital Commerce 360 found that, as of last August, nearly three-quarters of the top 1,000 U.S. retailers offered some form of free shipping, with 45 percent requiring a minimum purchase.
While backing away from free shipping may be the only option for some, the service still demonstrates the ability to get customers to buy and provides a perceived competitive advantage. Kohl’s revamped its free delivery offering making it available on orders larger than $49, down from $75, which led to an increase in conversions.
Amazon has also rolled back at least one other Amazon Prime perk that was once a big selling point. In addition to a recent increase in the cost of a Prime membership from $119 to $139, Amazon no longer guarantees two-day shipping on all orders, according to The Penny Hoarder.
Shipping is not the only place where retailers have been dialing back customer perks due to rising costs and the need to make margins. Dunkin’, Chick-fil-A and Starbucks have all recently raised the threshold for rewards program members to get free products with accumulated points, according to an Insider Intelligence report.
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Amazon, other retailers revamp 'free' shipping as costs soar - Reuters
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What should the free shipping threshold be? - RetailWire
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Amazon Prime Doesn’t Guarantee 2-Day Shipping Anymore - Do This Instead – The Pennyhoarder
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Chick-fil-A joins Starbucks, Dunkin’ in raising threshold for free rewards - Insider Intelligence
Discussion Questions
DISCUSSION QUESTIONS: Do you see shipping charges returning as a regular part of all online retail transactions? Is there still a risk of alienating customers by charging too much for S&H, or losing out on conversions by making free shipping thresholds too high?
Poll
Loading …BrainTrust
Dave Bruno
Director, Retail Market Insights, Aptos
Ken Morris
Managing Partner Cambridge Retail Advisors
One of the toughest things to do is to reset customer expectation, especially when it involves charging money for something that used to be free. But given the impact of shipping on a company’s ability to be profitable, and the growing demand for better environmental practices, companies need to bite the bullet and launch a carefully crafted re-education campaign to lead shoppers to more sustainable business practices.
I’m not sure free shipping will be going away completely, just that online brands will be tightening things up to control their costs. There are already several “strings” attached to many purchases, even if you are an Amazon Prime member for example.
I think free shipping is going the route of free bags on flights. A few will stick by it, but probably raise prices elsewhere to protect their margins. Others will up their minimums for free shipping or use their returns policies to control costs, because changing returns policies will have an impact as well. Having customers pay a restocking fee or pay for the return are two of the many options already in use.
Free shipping is not viable for most retailers and the expectation will soon disappear when Amazon pulls back. However it should still be part of a promotional armory at specific times of the year. It is a great weapon but when everyone does it all the time, it loses its impact. Now Amazon does need to be careful as Prime users will feel aggrieved that they are paying more for Prime and losing their benefits.
Free shipping is not a thing of the past–yet. But it will be in the next three years. Why? Because it is unsustainable and, to raise prices to cover shipping costs, passes the higher prices onto consumers that shop in stores and take the merchandise with them. Unfair.
Slowly but surely, sanity will return to e-commerce logistics. It simply has to happen. Subscription fatigue is pervasive, so expecting shoppers to sign up for “premium” loyalty programs to help offset free shipping costs is not realistic. Free logistics place enormous pressure on e-commerce margins, and before long shareholder pressure to restrict and reduce free logistics offers will also be enormous.
I think shipping needs to stay free for customers to be happy, especially if the cost of goods is still inflated. This is just an expectation consumers have now.
Free shipping is a marketing strategy, bottom line. And an expensive one at that. I suspect the pendulum will swing back and forth as companies use it as a promotional vehicle when they need a differentiating offer in the market.
Two thoughts:
As much as I enjoy the perk of free shipping, it isn’t a sustainable policy for retailers. Raising minimum order sizes is a logical move to make free shipping more absorbable. Another option is to follow Amazon’s policy of free shipping for those customers that pay for a membership. Some retailers may opt for offering free shipping on a sliding scale for shipping costs based on the annual value of customer purchases, similar to the status level perks of airlines and hotels.
It isn’t a thing of the past – some retailers remain fearful of charging lest they lose customers and share, others will use free shipping as a promotional tool. However the trajectory is clear: retailers are getting stricter with their policies, especially around returns.
“Free shipping” was never a thing to begin with! It was, and remains, a marketing message that resonates with consumers. The shipping cost was absorbed into the prices and struck out as a line item. Full stop. I think breaking it out again would be a mistake.
Free shipping went from a needed-to-win to a needed-to-play. With rising costs retailers are finding the cost is something that they can no longer absorb. The choice of which direction they take it — charging fees, lengthening the delivery time or requiring a larger purchase — will be determined by internal factors for that retailer and what it deems as its competitive set do.
The jig is up. As high inflation erodes the viability of free shipping, more retailers will add shipping fees.
Higher fees will drive some customers away and retailers with lower or no shipping fees will gain an edge.
Profits matter and you’ll see more and more retailers altering their free shipping models. It’s economics 101.
The greatest risk falls on retailers and e-tailers that charge for fast and/or free shipping benefits. I’ve noticed tweaks to Amazon’s shipping practices. Prime membership renewals could decline if shipping conditions become even more limited, compromising conversions to the other products and services on Amazon’s platform. Knee-jerk changes will backfire.
I think what we are seeing is that retailers that are still offering free shipping and handling have raised prices on the products they are shipping or are only offering the service as a promotional vehicle on certain types of items. Until the economy stabilizes, I see it as a norm that this will be cut as a freebie.
Free shipping was never free. Be assured in the product package that we were buying that shipping was included. It is no more an “extra cost” than the rent paid for the store location. When the cost of operating a store increases, do retailers start charging an admission cost to the store?
Delivery has certainly been a differentiator — and a key decision criteria for consumers. But offering “free” (whether transparently or hidden to the consumer) is unsustainable. Eventually the thresholds will be so high that free will no longer be viable. Consumers will recognize that convenience of home delivery comes with a price (and this will further level the brick-and-mortar playing field).
I think there is a difference between dialing back rewards and curtailing free shipping. Just like the cat who tasted fresh tuna and eschewed canned tuna, the same holds true for free shipping. Yes, modify minimum purchase requirements, but don’t eliminate this now expected shopping attribute.
Free shipping should never have been. Amazon, though, used investor funds to underwrite losses which only increased through shipping. The result was that a premium product — online ordering of individual items delivered to your door for free — was priced at a discount price.
Yes. Almost all online sales should charge for shipping. It’s the only way to return sanity to retailer efforts to balance bricks with clicks.
Will this alienate customers or lose conversions? Do retailers really need to be paying customers to take product off their hands? Yes, detailed specifics might suffer but the point is to create a whole business which thrives — not to maximize online orders by losing money on each one.
Why do we bristle about free shipping (even though it isn’t free)? We think nothing of the cost of getting a product to a store nor the cost of operating the store. Those costs are baked into the margins. Doesn’t free shipping simply replace those costs?
Free shipping is a critical component in online sales and there is no alternative to it. Retailers may increase the threshold price to avail free shipping, however completely eliminating the perk would be wrong. Customers would rather prefer to pick-up their orders from a store or a facility instead of paying the shipping charges, so charging too much on shipping costs will only backfire for the retailers.
In my opinion, by blaming free shipping as the culprit, retailers are hiding their other problems like unclear strategies for online and physical retail. The reality is that despite all the omnichannel talks over the years, retail experience hasn’t evolved for many legacy brands.
Retailers need to get out of this mindset and know that they are not just selling items that serve necessity but also the “stuffs” that customers buy from their extra or saved income. If retailers don’t offer the convenience of same-day or next-day delivery, customers may not be motivated to make more purchases.