HOW MUCH DO YOU PAY FOR FREE SHIPPING ?

[Anonymous]

How much do you pay for free shipping?
When it comes to online purchases, no two words are more likely to require a calculator than “free shipping.”As with music and frequent flyer miles, consumers like their shipping free. But when they do the math, they realize that free shipping is often an oxymoron. Somebody has to pay for all of those Styrofoam peanuts.According to a recent survey by online retailer trade group Shop.org, 75 percent of online shoppers said that free shipping was important to their decision-making process. At the same time, many online retailers have upped the ante on free shipping by requiring higher price thresholds and other conditions.It seems that retailers have studied up on a 2005 report by Wharton Business School professor David Bell and two colleagues from other business schools. After analyzing purchase patterns at retailers such as Amazon.com, Bell and his colleagues found that given the choice, online shoppers prefer a free shipping offer that saves $6.99 versus a $10 discount.”It’s counterintuitive,” said Bell. “If a company offered $10 off an order, they got more people ordering, but by offering free shipping they got an even bigger response.”Bell’s study also found that shoppers became indifferent when choosing between a high price with free shipping or a low price that requires paying for shipping. Those who paid the high price ended up shopping less frequently. When Amazon.com lowered its free shipping threshold to $25 from $50, Bell said, the company found that shoppers ordered in smaller volumes but shopped more often.Small specialty online retailers who might not be able to afford to offer free shipping have experimented with limited offers.

Frontier Angel, a Grass Valley-based Internet retailer (frontierangel.com), found a shipping solution that encourages local customers.”If someone lives right down the street, I just consider it a local discount,” said company owner Diane Longacre. Frontier Angel ships hand-made soaps free to buyers in surrounding Zip codes 95959, 95949 and 95945. Longacre said that she adopted the policy after learning that it’s standard practice in her industry.Understanding how attractive free shipping is to potential customers, Longacre said that she occasionally offers free shipping with a price threshold of $15. During a two-week period in October, this limited offer drew an increase in sales of 35 percent.

THe Nevada City body care retailer, V’tae (vtae.com) linked its Web site to UPS a year and a half ago. UPS totals the cost for each individual order.V’tae president Alanna Haley said that the company switched from using a table rate because it “seemed absurd” that a customer buying a product for $4.99 would pay $4.95 for shipping, the lowest shipping price.While switching from a table rate to UPS didn’t raise the sales, V’tae occasionally rolls out a free shipping offer to boost sales.”Shipping is very expensive, so we try to do [free shipping] as a special every once in a while,” Haley said.The bottom line is that somebody has to pay for free shipping, and fewer online stores are willing to take the hit. But some do and see it as a key differentiator.

Truly free shipping rare but not extinct
While the days of Kozmo.com delivering a 60-cent package of M&Ms for free by bike messenger have long disappeared, some companies have managed to transform free shipping into big profits.

One such company is Miami-based Databazaar.com, an online retailer of printers and printer supplies. When Databazaar.com began offering free shipping with no conditions or minimums five years ago, sales spiked 20 percent. With 2005 sales figures totaling $31 million, CEO Oney Seal remains committed to what he calls “truly free shipping.””We’re making a smaller profit than our competitors,” said Seal, admitting that the decision to lower the price threshold from $50 to zero was difficult. “Shipping remains one of the biggest items on our P&L.”Seal said he tries to cut costs in other ways, like increasing efficiency. In the world of Internet price aggregators, he claims shoppers comparing apples to apples (such as an ink jet cartridge) are more likely to click over to Databazaar.com in search of free shipping.Not only does truly free shipping attract more eyeballs, but more repeat business, as well, according to Tony Hsieh, CEO of the Las Vegas-based Web shoe retailer Zappos.comSince offering condition-free shipping both ways (deliveries and returns) seven years ago, Zappos.com’s sales rose from $1.6 million in 1999 to a projected $575 million in 2006.”In the short run, it means less profit, but I think it’s definitely connected to the growth,” said Hsieh of the company’s free shipping policy.”Our site is driven by word of mouth and repeat customers. Every time we do something to improve our service, we see repeat numbers go up.”

Free shipping in some form is here to stay
In the hyper-competitive world of online retailing, consumers can probably count on free shipping in some form for the long term. In some categories such as shoes, dominant retailers like Zappos.com have forced their competitors (grudgingly, no doubt) to offer truly free shipping.”As a retailer you almost have no choice,” said Scott Silverman, executive director of Shop.org “It almost becomes a cost of doing business. I don’t mean to sound flippant, but retailers don’t have a choice in the matter if they want to be competitive.”

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January 3, 2007 at 12:37 PM