Amazon Ups Threshold For Free Shipping
The conversation last night started something like this: "Did you know that Amazon raised its price for free shipping?"
Amazon, in an un-Amazon-like manner (meaning quietly), has announced that to qualify for free shipping consumers will now have to spend $35 on the site instead of the $25 threshold that has been in place since what seems like forever.
The move, quite obviously, will help the e-tail giant offset some of the massive costs associated with shipping stuff all over the country for free. Many people, myself included, would until now add a second small item to an order to meet the $25 threshold. Reaching $35 shouldn’t be too difficult either, but will it delay purchases of non-essential items or perhaps even make consumers think of choosing another online or in-store option for their purchases?
One clear goal behind Amazon’s decision to raise the minimum for free shipping is to move more shoppers into Prime memberships. A note on the page announcing the shipping change reads: "Millions of Amazon customers have already made the choice of faster shipping by becoming Amazon Prime members. Prime includes unlimited Free Two-Day Shipping, with no minimum order size, on more than 15 million items, as well as unlimited streaming of over 41,000 movies and TV episodes through Prime Instant Video and access to over 350,000 books to borrow through the Kindle Owners’ Lending Library. The service is so popular that more than a year ago we began shipping more items with Prime than with free shipping."
Not all were happy with the way Amazon announced the changed.
An article on The Consumerist website concluded, "It’s not so much the shipping requirement that sticks in the craw, but the way Amazon non-announced it. Customers appreciate being filled in on changes before they happen, instead of finding out belatedly when their items are already in the digital basket."
That’s how the conversation started last night.
Discussion Questions
Do you think Amazon’s higher free shipping threshold will affect its non-Prime sales? Did the company handle the announcement properly?
Agreed that Amazon, the poster child of customer delight, could have done a better job of communicating this change. Having said this, I think it is a terrific tactic to move customers to Amazon Prime. Prime’s free two day shipping is a great tie breaker when purchasing products online or even at a physical retailer. Prime eliminates any shipping costs barriers to purchase. Why shop anywhere else when you get great service and free shipping with Amazon Prime.
By the way, it may have a negative effect on non-Prime sales. However, it appears the current threshold purchase level is not cost effective for Amazon. That’s why I do not see this as a risky, even if unannounced, decision.
Good move. They have often been criticized for their small profit over the years, so it is about time they did something about that. They won’t lose any money-making customers over this – their offerings are too good.
In the longer term, this is probably a good idea for Amazon (to be followed by raising the cost of a Prime membership.) In the shorter term, though, given the fact that a number of stores are offering free shipping on everything, you have to assume that lower-ticket sales will move away from Amazon, for now.
I see no real impact. And yes, Amazon handled it correctly. Most likely it will not impact too many shoppers. Basket size is probably large enough for most shoppers that few will notice.
As the article says, Amazon upped the threshold for free shipping in order to cover more of the cost and to drive sign-ups for Prime. It’s interesting that they did this as consumers prepare to up their spending for the holidays.
For consumers, the increase is not good news, so Amazon didn’t make a big deal about the announcement. Can you blame them? As long as they did not hide the news until consumers reached the shopping cart, there shouldn’t be too much consternation.
Look for other retailers to review their free shipping thresholds.
I would expect they used their data to establish this threshold and to determine that the benefits are material and that any fallout is minimal.
Even the communications should be linked to the data. Ideally, targeted and personalized communications went to the appropriate customers to handle the change optimally for each of them … or maybe this didn’t happen either.
I have been a Prime member for almost two years and it was clearly one of the best investments I could have made. Free movies and TV series, borrow books for free from a huge library and of course, free shipping.
The announcement or should I say unannouncement seems fine. I rarely see a retailer hang up signs in windows to let customers know that Colgate toothpaste will now be 30 cents more.
Netflix had a huge backlash when they announced their pricing model change. That caused them to quickly reverse their decision.
I don’t see this being them same situation. Amazon still offers free shipping. You just need to have a larger basket to receive it. I do believe this will increase Prime users once consumers do the math. Hard to image shoppers will go elsewhere.
Summary: Amazon will gain by moving an increased share of customers to the higher profit, loyalty, and advocacy experienced by their current Prime members. In addition to this Amazon is also making a profit play. They have created a moat around their business and improved their brand image to the point where they can start turning their large customer base into increasing profits.
Additionally, Amazon’s AOS is between $165 – $185 dollars. This move will mainly impact their low order size transactions, decreasing the amount of orders that leave Amazon in the red. In the future, Amazon may further increase their margin on items.
Nothing of value in life is free.
Rest assured that Amazon has enough big data to evaluate breakeven and profitability on shipping costs, as well as cart abandonment. Amazon is definitely the market leader who sets the trends. You can safely bet that other retailers are carefully watching to see if they can follow.
Does anyone ever have an Amazon minimum order less than $35? ;>)
Amazon is VERY smart and has thought this through very carefully. I’m going to bet that this doesn’t make much of a difference in that a large percentage of Amazon purchases are below $25. Second, this could increase Prime membership. Third, there are some customers that will buy more to get to the higher level to get the free shipping. I’m betting on Amazon’s decision.
Look, there’s an easy way to make customers happy: sell stuff near cost, offer free shipping, and make it all simple for the customer. But Amazon’s financials indicate that by doing so, it has been losing money at the low end of order sizes.
You can’t make up losses on each sale with more volume, so this move was inevitable. Yes, it will hurt Amazon’s $25-$35 basket, non-Prime sales to some degree, but those were unprofitable sales to begin with. Instead, Amazon will get (a) some profitable, sub-$35 sales where shipping gets charged, (b) some profitable, $35+ sales with free shipping, (c) some profitable and revenue-driving upgrades to Prime, and (d) some lost, huffy, unprofitable customers.
Total no-brainer.
The company handled the announcement just fine. No need for a lot of fuss and fanfare. People raise prices. It happens and none of us are really surprised, now are we?
Amazon has been giving away free shipping and we all knew it was a great deal. Great deals sometimes don’t last that long. So what is $10 more? We’ll handle it. We love Amazon and this doesn’t break the bank.
It also gives other retailers, who really can’t afford free shipping, a license to charge. Whew!
From my perspective, there is no doubt that it will. Since the hurtle is higher, I will wait to order until I have enough items to go over the $35. Of course, as you get further away from the immediate need, things become less important or forgotten and so Amazon is likely to lose sales because of it, at least from me. I prefer to deal with Amazon for some of my purchases. However, I am not particularly interested in the fee charged for Prime – not enough value for me.
Here’s a suggestion to them to increase interest in Prime – Free book borrowing is limited to only one book per month. If they were willing to increase that to say 5 or even, God forbid, unlimited, then I would definitely be much more interested.
Amazon has become synonymous with low prices and free shipping. The problems of small e-commerce retailers finding ways to be cheaper and shipping costs going up are here to stay for all of retail, including and maybe even more so for Amazon. You might be seeing something that Bezos can no longer compensate with by reducing company operations costs further. So let’s see how he handles a rock and a hard place for a change. Will it be explosion or implosion, as in market share of holiday revenue?
Sorry friends. I can’t see where this is going to be a big deal for anyone, other than we who want to write about it in some fashion, either pro or con. I doubt many orders will be affected as most are probably over the $35 threshold. Amazon will be like the Timex watch, take its licking and come out ticking.
1. This is a non-event.
2. Amazon understands the 80/20 rule.
Is it really correct to say the announcement was “quiet” or even a “non-announcement when it instantly became front page news on every newspaper/website in the Solar System? Whether deliberate or not, nothing Amazon does is “quiet.”
It seems to me that this will move more business off to Amazon Marketplace. That alone may be a more profitable way for Amazon to operate, or it may be an unintended consequence of Amazon simply trying to recoup more shipping expense.
I don’t think it’ll push more people into Prime. And the announcement is basically a non-event. I think careful shoppers will still easily find a way to reach $35 in order to have free shipping kick in. I took a look at my many shipped free Amazon purchases and found only one in the last year which fell between $25 and $35. There was only one time where I paid shipping on a single inexpensive item less than $25.
The free shipping threshold is an optimization calculation for Amazon. Ben’s analysis here is impeccable.
I’d be interested to learn more about how the company settled on the $35 price point. It’s not the type of policy change that could be pre-tested with consumers. So is it based purely on financial modeling?
Amazon certainly didn’t need to spend a dime publicizing this, as today’s coverage proves. But if I were running the show, I’d have put a little banner on the home page starting Oct. 1, announcing new shipping rules with a link to a statement and Amazon Prime sign-up.
Short answers – no and yes. However, let’s be realistic here and say they simply raised the threshold amount where shipping is included in the price.
It is not free at any price, just as it isn’t free to prime customers. They pay too!
The whole “Free Shipping” gimmick has had a nice run. Like anything where free is used, you don’t get away with it forever.
I don’t think it’ll make a bit of difference. You can expect Amazon to do things like this across the board as they continue to try and figure out ways to make money aside from pure product margin, which is microscopic and thus hyper competitive. The goal for them now is growth and re-investment, not profit. So it won’t take center stage any time soon – but it will once they get closer to Walmart’s revenue. Here’s a piece from the NYTimes on the topic.
It may affect the non-prime sales but given how data driven Amazon is, I’m sure they’ve done their due diligence and determined that this new threshold is the right decision within the bigger picture. I agree with Chris that other retailers may follow suit.