The History of Free Shipping
Shipping costs have long been a barrier to purchase.
Amazon first offered free shipping to customers who spent more than $100 during the 2000-2001 holiday season.
In doing so, Amazon recognized that people who perceived shipping costs as a barrier were willing to wait a few extra days for their orders. Meanwhile, customers who wanted prompt delivery were willing to pay for it.
Borrowing an idea from the airline industry, Amazon segmented its customers according to their willingness to wait.
By creating the infrastructure to handle its two distinct customer groups, Amazon was able to create the cost-saving efficiencies that paved the way for free shipping.
In 2002, Amazon debuted Free Super Saver Shipping for all orders over $100. That number soon dropped to $25 and would eventually become the blanket free shipping of Amazon Prime.
Amazon’s free shipping model has been called “unsustainable” by many, but the company’s cash flow says otherwise.
As Amazon’s sales continue to climb, so does its “free cash flow,” which Amazon uses to reinvest in growth.
Reinvesting e-commerce cash into innovative products and capital expenses like data centers and solar farms helps to buoy the bottom line.
Doing so also ensures that Amazon’s advertising verticals and AWS cloud services continue to grow, which sustains its profitability.
These trends should continue as free shipping gains traction with consumers.
Small Businesses Must Consider Offering Free Shipping
Thanks to Amazon, people now expect free shipping from all businesses.
According to Clutch, a similar percentage of both Prime and non-Prime members expect to receive free shipping, as seen below.
Small businesses must adapt to satisfy the shifting desires of customers.
For example, the online marketplace Etsy announced recently that sellers who don’t offer free shipping on all orders over $35 would be de-prioritized in the site’s search algorithm.
Some businesses have modified their product offerings to feature only items that can be shipped without hurting the bottom line.
Faced with difficult decisions, businesses must get creative about offering free shipping or finding sustainable ways to offset these costs.
Small Businesses Can Include Shipping Costs in Products' Prices
Following the recent announcement, Etsy’s CEO advised sellers to include shipping costs in products' prices.
Including shipping costs in the product price is an effective way to reduce cart abandonment. According to The Baymard Institute, 60% of abandoned online shopping carts are due to high shipping, taxes, and fees.
Though increasing conversions is appealing, the downside is that shipping costs can vary widely.
For example, sellers of ceramic pots on Etsy would need to pay $80 to ship their products nationally or $35 in local areas. Pricing between these two options is a risky endeavor that requires a high degree of customer visibility to get right.
Adding shipping cost into the product price is a solution for some small businesses, but will challenge those with a diverse audience and varied products.
Small Businesses Can Seek Outside Fulfillment Help
Accessing economies of scale can help small businesses compete with e-commerce giants.
Consider that Amazon’s warehouses in the U.S. occupy as much space as 38 Pentagon buildings.
The size and connectivity of operations are what enable Amazon to offer free and fast shipping anywhere.
Small businesses can use third-party logistics providers (3PLs) to reduce their delivery costs and manage fulfillment.
This is because 3PLs use the same technology and infrastructure as e-commerce giants, helping to cut costs, accelerate package delivery, and provide package protections that customers enjoy.
Outsourcing shipping to logistics experts helps businesses of all sizes offer free shipping and improve their customer experience.
Small Businesses Must Embrace Free Shipping
In the wake of Amazon’s move to free delivery, businesses must take proactive steps to satisfy customers’ newfound expectations for free delivery.
Consider including the price of shipping in your products, adjusting your product offering, and using a third-party service provider to spare yourself the high cost of shipping.Last modified on Tuesday, 21 April 2020