“Freight Freak” John B: No ‘Free Shipping’ Lunch

Posted by AMS / Wednesday, April 5, 2017

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shippingShipping for free is to get a lot more expensive; it’s more like ‘not so free’, therefore online buyers beware.

Retailers including Amazon.com Inc., Best Buy Co. and JC Penny, Target, Gap Inc. and many more are increasing the amount online shoppers have to spend or the minimum order amount to qualify for free shipping. In other ways to make it up they will limit product offerings and or add margin to cover.

With increasing costs of freight, especially among residential addresses, online retailers are hoping to offset or even cover the full cost of providing that perk. According to an article in the Wall Street Journal, on average, “…a customer now has to spend $82 on merchandise to qualify for free shipping, based on July 2016 data from 113 major retailers – up from $76 the same month a year earlier, according to StellaService Inc., which collects data about online shopping.”

Late last year Amazon announced that it had raised its free-shipping minimum to $35 from $49. In March of that same year, the eCommerce giant increased the fee for its Prime membership, which allows for unlimited free two day shipping. The electronic store giant, Best Buy, said it successfully increased its shipping minimum to $35 from $25 after realizing the free-shipping offer enticed customers to buy more to qualify. Just last month WalMart, second to Amazon, announced Free Shipping with no membership. This new online marketing campaign is certainly catching on not only with the retailers but shoppers as well.

Free shipping was supposed to be a temporary enticement in the early days of eCommerce. It grew to be such a perk that shoppers began to expect it, if they were to buy online. In some recent surveys of over 6000 US shoppers, half said they have abandoned an order if it didn’t qualify for free shipping. The Free Shipping gimmick is so important, in that 93% of online shoppers said they have taken extra actions to qualify, like adding items to their shopping cart or opting for a slower method of delivery, according to the ComScoreSurvey.ng, a data tracking firm that conducted the study for UPS.

“Free shipping is not free. Somebody is paying for it,” says Bala Ganesh, retail segment marketing director at United Parcel Service Inc. If one really gives some thought to the notion of ‘Free Shipping’, my opinion is that it’s just the new way of driving more business within retailers using a omni –channel marketing approach. It’s just common sense that the costs have to be absorbed somewhere to pay for the fulfillment and freight associated with getting an order to someone’s home address.

On average, shipping expense is typically somewhere around 10-15% of the product price point. Of course, this varies by size and weight. Nevertheless, it’s added to the price point or within the minimum order amount to qualify. We also know the minimum order value to qualify for Free Shipping will not always pay for all the expense every time a consumer buys certain goods. So when you look at the fine print it lets you know that there are only certain items that may qualify or it may say “Free on thousands of items” as it does with Best Buy and Walmart. Those items are the ones that have enough margin built in and ship at the lowest possible cost to provide such a perk. Therefore the consumer is paying freight one way or another for the items offered online.

As the Free Shipping tag line continues to induce on line shoppers to buy more, one can only expect the minimum price to qualify to grow higher and the pool items available to purchase may end up becoming smaller. The freight freebee is not a sustainable business model for anyone without a way to recoup. So remember, the enticement is there, but buyers beware!

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For more information please contact John Bevacqua by phone or email at the following: Office 661-775-0611 or John.Bevacqua@amsfulfillment.com.

About the Freight Freak:

John Bevacqua is the VP of Logistics at AMS Fulfillment. His area of excellence is in creating distribution and fulfillment operations that function as a capable interface between suppliers, retailers, and wholesale distributors. His experience includes developing and leading FedEx/ Kinko’s Distribution Services into the FedEx post acquisition, USA Wireless Technologies, and a top Logistics Management company. He has also worked with third party fulfillment companies, preparing him for his current position with AMS Fulfillment.

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