Free Shipping Options for Smaller Retailers

While e-commerce lets hundreds of millions of prospective customers compare products, prices, and offers at stores across the U.S., it’s not exactly a level playing field for retailers. The promise of free shipping continues to be one of the top two factors in consumers’ online purchase decisions, second only to product quality. Unfortunately for small and mid-sized stores, they can’t absorb shipping costs as easily as a mega-retailer like Amazon can.

A recent Wall Street Journal article, entitled “Free Shipping Crowds Out Smaller Retailers,” showed yet again just how much consumers hate paying for online order deliveries. In fact, consumers dislike shipping charges so much that they’ll voluntarily pay almost a hundred dollars a year just to avoid them, as Amazon Prime has proven.

Make no mistake: Free 2-day shipping is the single biggest reason why people join Prime, far outpacing streaming video and other benefits. Fulfilling the desires of today’s shoppers is a savvy business move for Prime, but it increases the pressure on other online stores to do the same. That pressure has driven Walmart, Target, and other big-box retailers to craft programs and policies that offer free shipping to their customers.

The simple fact, though, is that “free shipping” isn’t really free: Someone has to pay the costs associated with moving an item from a warehouse to a customer’s front door. Indeed, Amazon acknowledges that Prime’s $99 annual fee doesn’t cover the average member’s 2-day shipping costs. Amazon doesn’t mind, though; it values customer loyalty and revenue growth over profits, and Prime members spend almost twice as much as non-members do.

Absorbing shipping costs is obviously a good trade-off for large retailers. After all, studies show that free shipping:

However, smaller stores obviously don’t generate anywhere near the revenue that Amazon and other brand-name stores do. They also can’t raise prices to cover delivery fees; that would drive customers away, perhaps straight into Amazon’s arms. As the president of a specialty retailer told the Journal, “We can’t pass along the costs to consumers, because of Amazon.”

Small retailers that want to offer unconditional free shipping might therefore think they have only two credible options: absorbing the costs themselves, or joining Fulfillment by Amazon (FBA) and making their items e

ligible for free 2-day shipping via Prime. Both options would obviously cut into their margins. Signing up for FBA offers stores increased exposure to Amazon’s large audience, but at what cost? Stores need to figure out whether the FBA fees are lower than their own shipping costs, and just how much working with Amazon will adversely affect their own site traffic and sales.

Retailers can pursue other options, of course. Research shows that almost 60% of online shoppers have added items to their cart just to reach free shipping purchase thresholds; this avenue also lets retailers test various order minimums and determine their optimal margins. Plus, stores can keep using their order shipments as retention devices — stuffing them with catalogs, coupons, special offers, and other incentives that motivate their customers to shop with them again and again.

They should also consider a customized loyalty program, one that combines a free shipping offer with other benefits to target, satisfy, and lock in their best customers. At Clarus Commerce, we specialize in programs that support and achieve the specific goals of each individual client. This allows our clients, which come from a wide range of industries and verticals, to focus on their core business while our experienced, in-house experts design, build, launch, manage, and continually enhance their programs. We also offer retailers opportunities to create a steady stream of incremental revenue while taking advantage of the proven appeal of FreeShipping.com, our flagship product.

Click here to find out what we can do for you.