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Free Shipping Myths
These days a lot of online shoppers will choose the best online store over another because they offer free shipping. But is free shipping real or is it just a myth? More and more online stores are offering their customers free shipping if they spend a specific amount of money. But is free shipping really “free?”
It is certainly a good marketing ploy. The online store owners know that free shipping is a good draw with customers. Let’s face it we all like the idea of getting something for nothing don’t we? But the bottom line is that everything is not as it seems. If online stores really offered free shipping they would lose a ton of money every year.
What does Free Shipping really mean?
Basically, free shipping is a tool used for marketing. It is where an online retailer removes the charges that a customer would normally pay for shipping where an order is eligible for this. There are exceptions to this rule, such as placing an order on Walmart for $35, then you will get free shipping, which may not even be possible if Walmart did not get huge shipping discounts through their shipping carriers.
The online retailers remove the shipping cost but this doesn’t mean that the online shopper will not end up covering the cost in other ways. As a shopper, you will see that the shipping fee is zero in your cart but that doesn’t mean that the cost has disappeared from your order.
It doesn’t matter how large an online retailer is they cannot absorb the cost of genuinely providing free shipping. Somebody has to pay and it doesn’t have to be the customer (on the surface). There are other components to the supply chain and they can apply pressure there.
The big online retailers have larger economies of scale and are in a strong position with their shipping suppliers. They can demand lower shipping prices and offset a lot of the costs of providing a free shipping offer. Smaller online retailers are not in this position and have to absorb the costs if they really make shipping free.
But the smaller online retailers will not genuinely offer free shipping. They cannot afford to cover the costs and they have no bargaining power with their shipping suppliers. So what do they do? They increase the prices of the items they offer to cover the costs. That means that you as the shopper think that you have saved money but you have not saved anything, and have paid more.
Even the Famous Stores are doing it
The world’s biggest online store, Amazon, has its “Prime” offering where customers in the United States pay a yearly fee of $99 and then get free shipping on millions of items that are included in the Prime membership.
They are not alone in this. Big retailers such as Gap and Best Buy are doing it too. So do Zalora and ASOS. The thing is though that all of these giant online retailers have had to increase their minimum shopping amounts to qualify for free shipping because the costs were prohibitive.
Why do Online Stores offer Free Shipping?
People do not want to see unexpected costs added to their shopping cart. Add on a few dollars for shipping and a lot of shoppers will abandon their shopping carts in the belief that they can get a better deal elsewhere.
Most online shoppers know that there has to be a cost for receiving their ordered goods, but this has a negative effect on them and some even feel like they are being conned. This is not logical but it does result in shopping cart abandonment.
Most online stores that offer free shipping insist that a shopper has to spend a specific amount to be eligible for it. Let’s assume that the order value requires for free shipping that is $100. What would you do if your order value was $98? Would you stop shopping and pay the shipping cost or would you look for another item to achieve the minimum order value?
You are going to add another item, aren’t you? And the online stores know that you are going to do this. You will be motivated to increase the size of your order to get something for free. It has worked for many years in all kinds of conventional trading and it works online as well.
Online stores will not lose that much by offering free shipping on larger orders. Shipping a larger order is more cost effective than shipping several smaller orders. The larger online stores are prepared to continue with a free shipping policy because they know that most online shoppers have an issue with it.
These days’ online shoppers looking specifically for stores that have a free shipping deal. They don’t think too much about whether the retailer has inflated the prices of the items they are purchasing to cover the shipping costs. All they care about is the shipping being free of charge.
What the Surveys had to say
According to the National Retail Federation (NRF) 85% of people that shop online stated that free shipping is a very important factor in their purchasing decisions. In fact, it is second only to discount offers and sales promotions.
The NRF also surveyed a number of online retailers and almost 50% of them stated that they were going to increase the number of free shipping offers that they provide. They also consulted with shipping organizations such as FedEx, UPS and the USPS who all said that they would organize themselves better to cope with increased demand.
There have been a number of surveys conducted on why online shoppers abandon their carts. A comScore survey showed that 57% of online shoppers abandoned their shopping carts because they were just browsing or “window shopping”. Some 56% of shoppers abandoned their carts because they would return and make the purchase later on.
Shipping costs figure high in shopping cart abandonment as well. Econsultancy.com found that 74% of online shoppers abandoned their carts because they felt the shipping costs were too high. Online retailers are always concerned about shopping cart abandonment and Target responded to this by joining in with their free shipping offers.
Trimble conducted a survey on cart abandonment and this revealed that some 58% of the participants felt that free shipping or reduced cost shipping is something that all e-commerce stores should implement.
A study by the Journal of Retailing looked into the effect of shipping costs on the acquisition of customers, the retention of customers and the number of items purchased by customers. This study claimed that if shipping fees are high then this will reduce the amount of traffic that an online store receives.
So what does this all mean for you?
All of the evidence suggests that online stores will continue to offer free shipping in some form or another to attract customers and retain them. But these are businesses and they are not doing this out of the goodness of their hearts.
Someone has to cover the cost of offering free shipping and that will be you as the consumer or another part of the supply chain such as the shipping suppliers. Now you might think that it is great for shipping suppliers to contribute to these costs if you use the larger online stores. But when any company has
The shipping carriers also need to claw back this cost. So they start making cuts to their operations. In the end, you the consumer end up paying for this as your items don’t arrive on time or your items suffer damage through mishandling.
If you use smaller online retail stores then you will usually end up paying more for the items that you purchase to cover the free shipping costs. A small company does not have the economies of scale and it certainly cannot afford to absorb shipping costs.
So when you see free shipping offers in the future bear in mind that this is a marketing tactic to get you to stay with one online store over another. Someone will be paying for this and even if it is not you then you could end up suffering from the quality of your deliveries.
Free shipping is a myth and very few things in this life are free. You may find that you can find the same items cheaper in another smaller online store, and even with the shipping costs, you will still save money. So our advice to you is not to just accept that free shipping offers are the best deal. At the end of the day, someone has to pay and usually it is you.
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