The Allure of Free Shipping
A familiar tagline – 62% of online shoppers won’t buy from a retailer that doesn’t offer free shipping. Another 35% of shoppers say they prefer free shipping, although it’s not clear how many of them would still buy without the free offer. So, next to all bold SALE signs and big percentages off original price promotions, “free shipping” has emerged as the must have offer to entice online customers.
Thanks to Amazon, we all got spoiled with free shipping (not ignoring the “fast” card – that’s for another day) and it has become one of the most powerful marketing tools. According to a Capital One Shipping Research 76% of customers are more likely to complete a purchase if delivery is free. Other retailers have followed the trail, often grudgingly, making the concept even more popular. But there’s more to this free offer than meets the eyes.
So, is free shipping truly “free”?
Although the question is often overlooked, the truth is everyone pays to make free shipping happen. Some pay a little and some do more – the impact of free shipping permeates across consumers, retailers, and the broader logistics industry.
The Costs Behind the Curtain :
For Retailers
For retailers, offering free shipping is a necessary evil, or in better words a strategic “must pay to play” decision. While the big players can absorb the costs in more than one way, those can be significant for small to medium-sized businesses without the vast logistics infrastructure of the larger players.
Of course, the gimmicks they all must play, if not directly absorb these costs, increase product prices to cover costs, require a minimum purchase amount to qualify for free shipping, or sign-up for a loyalty program etc. Some are at risk of affecting demand for their products.
For Consumers
On the surface, free shipping has always been a great deal for consumers. However, the true economics of it is often complex. Playing into the retailer’s lure, many a times products might carry a slightly higher price tag because of built-in shipping costs.
The psychological effect of free shipping might encourage consumers to buy more than they initially intended or needed, spending more overall to “save” on shipping. Although it may seem like a win-win scene for the market, consumers end up paying for some part of the free shipping offer – one way or the other.
For the Logistics Industry
The demand for free shipping has significant implications for the logistics industry – both to manage operational efficiency and scale. When free is mixed with fast shipping, the pressure is even higher to execute an agile and cost-effective delivery service that can meet the rising demand and order volume.
The process inadvertently leads to additional investments in technology and infrastructure, and many a times a push towards less sustainable practices to keep up with demand. If not managed well, this becomes a death spiral with unpreventable margin loss for the 3PLs, carriers and couriers.
For the Environment
Whether we like it or not, free shipping does encourage frivolous buying. When they have the flexibility of free shipping, especially accompanied with free return offers – consumers buy products in more than one size or different colors and return the ones that don’t fit their needs.
This has a notable environmental impact. The expectation leads to inefficient shipping routes, increased fuel consumption, and higher carbon emissions. Product and packaging waste are additional concerns.
So, along with the question of “free”, in the longer run, is “Free Shipping also sustainable“?
As I write the article, can’t help but ask myself how I can change own expectations or behavior towards free shipping for everyday purchases. I often argue that as technology advances, and as retailers, 3PLs, carriers etc. are required to reimagine traditional practices, supply chain and logistics models can become more efficient. That would help mitigate the costs and environmental impacts.
However, technology and process optimizations alone won’t suffice – a cultural shift towards valuing the true cost of shipping and its implications, including the environmental toll, would also be necessary.
Retailers and logistics service providers should continuously evaluate alternatives. Experiment with strategies that could still attract and retain customers while supporting better financial health for the business, such as:
Alternative fulfillment models : Direct manufacturer to consumer, nearshore models can help reduce the underlying logistics costs.
Tiered shipping rates : sometimes free, but slower delivery service options can be a more economic choice for all.
Free shipping on returns only: reduces upfront costs while still providing value to customers.
Real-time carrier rates at checkout: although a bold move, transparency often inspires customer loyalty and shared responsibility.
There are certainly more strategies to explore. With the evolving eCommerce landscape, the ability to continuously adopt innovative shipping strategies will become a defining characteristic of industry leaders. Unfortunately, inaction is not an option for those who want to stay ahead.
Until retailers and service providers are willing to reimagine and embrace the alternative choices – free shipping will remain an undeniably attractive proposition for consumers. But it is important to recognize that the cost is shared across the ecosystem.
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