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 user 2007-01-03 at 12:38:00 pm Views: 60
  • #17256

    How much do you pay for free shipping?
    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

    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
    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
    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.”