No Such Thing As Free Lunch...or Free Shipping

No Such Thing As Free Lunch...or Free Shipping

Free shipping has become an expectation for most American consumers thanks in large measure to Amazon. Shipping charges are the number one reason why online shoppers abandoned their online carts, according to a 2018 survey by Internet Retailer, further supporting the notion that Americans do not believe they should pay for freight. Other shoppers faced with a minimum for free shipping will make additional purchases, or buy more expensive products, in order to qualify for free freight, claims University of Pennsylvania Wharton School Professor Roy Berman. 

Consumer ire caused by having to pay freight for online and other purchases reflects the economic principle known as “pain of paying,” claims Ravi Dhar, director of Yale’s Center for Customer Insights. “The reaction to free shipping goes beyond the normal way of looking at cost and benefit,” explains Dhar. It’s similar to the anger hotel guests have when they have to pay to use the Internet in their rooms. And often the pain of paying is more about the thought of having to pay for something that most of the time is free regardless of how much the consumer is being charged. Offering a discount that has the equivalent value to the shipping costs is not as effective as free shipping. Dhar claims that consumers will pay more for products if there is not a separate charge for freight.

Not all shipping is the same. Smaller retailers pay a higher rate to ship packages than large companies like Amazon, who leverage their scale and volume for lower rates. Similarly, Amazon has convinced consumers that they have a right to return any purchase without charge or consequence.

Amazon has helped offset its free shipping charge through its subscription service Prime. There are more than 100 million consumers who pay Amazon $119 a year for “free shipping.” That is more than $11 BILLION in Prime dues. Amazon’s strategy is to entice Prime members to purchase as much as possible on its site to take advantage of the free two-day shipping offer.

So how can smaller retailers compete with free shipping offers? There are a few different options available for showrooms.

  • Reduce the discount offered to cover the cost of freight. This is a way to have the customer cover shipping costs without them feeling like they are. Some dealers do this with incoming freight from manufacturers as well.
  • Increase the price of products to cover the cost of freight. This allows customers to feel like they are still getting a full discount, but you are covering any freight costs.
  • Require a certain purchase amount to qualify for free freight, similar to what most manufacturers do. You will still be eating the shipping costs, but the larger orders will provide some relief. 
  • Instead of itemizing your quotes, provide lump sums for projects. Your new kitchen will cost $89,236 and that includes freight. The pain of paying for freight may be alleviated by not seeing it as a separate line item. 

The fact is that shipping, like lunch, is never really free.

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