Free Shipping: Perk or Permanent?

Discussion
Oct 07, 2013

To offer free shipping on online purchases as a perk or a guarantee? That appears to be the question many retailers are asking themselves these days.

Neiman Marcus last week became the latest retailer to move to year-round free shipping and returns for all domestic online orders.

"The customer has always been at the center of the Neiman Marcus business model," said Wanda Gierhart, chief marketing officer, Neiman Marcus Group, in a statement. "Permanent free shipping and returns have been a top request and we are happy to be able to make this change just in time for the holiday shopping season."

The service also covers any orders from its Bergdorf Goodman website. In addition, Neiman Marcus said all international orders over $100 will now ship free of charge.

The move comes after competitor Nordstrom introduced free shipping and returns in 2011, although only a few majors offer the guarantee. L.L. Bean made a big splash when it offered the guarantee in March 2011. Zappos has touted free shipping and returns as a core tenant of its customer service vision.

While seemingly generous, it’s not hard to find free shipping on online orders, with many retailers using them as an incentive to trigger purchase or to buy more:

  • Order amount: Gap.com offers free shipping for orders over $50. Kohl’s offers free shipping on orders over $75; macys.com, over $100; and jcrew.com and anntaylor.com, both over $175. Neiman Marcus previously waved shipping fees for web orders over $150.
  • Limited time: Bloomingdales.com was running a promotion for free shipping on any online order size from Sept. 30 through Oct. 6.
  • Order amount and time period: Saks Fifth Avenue has a promotion offering free shipping with any purchase of $150 or more through Oct. 14.
  • Rewards perk: Some retailers such as DSW and Staples reserve free shipping for its rewards programs members while also offering incentives to non-members to gain free shipping.

Although gap.com appears to stand out by offering free returns for any online purchase, most retailers charge a small fee (seemingly ranging from $6.00 to $8.00) for returns of merchandise bought online.

Regardlesss, free shipping remains highly popular with consumers as shown by the just-released UPS Pulse of the Online Shopper Study, based on a survey of 3,000 U.S. consumers by comScore. Asked about areas for improvement in the online shopping experience, the number one answer was "Availability of Free or Discounted Shipping," agreed to by 54 percent; followed by "Ease of Making Returns/Exchanges," 37 percent.

How important is free shipping to e-commerce success today? Should free returns become a widespread practice, as well?

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27 Comments on "Free Shipping: Perk or Permanent?"

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Gene Hoffman
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Gene Hoffman
3 years 8 months ago

As the late Hubert Humphrey once told me regarding his being a Democrat despite his free enterprise background, “Gene, you do what you got to do.”

In e-commerce, free shipping and free returns are already entrenching themselves as a part of retail life. So e-commerce retailers will do what they have to do.

Bob Phibbs
BrainTrust

There’s no such thing as “free.” The additional fees to support “free shipping, with roughly 30% of online purchases returned has to eat into the bottom line of these retailers.

Peter Charness
BrainTrust

Free? You mean a benefit that hasn’t been built into the cost of the purchase price in some fashion? Ever notice that even when on Amazon, using Prime to get free shipping, there is frequently a lower price from another seller that is lower by about the cost of that shipping?

I think offering your best customers who purchase larger baskets more frequently a benefit is a win, win (greater overall margin to the retailer and lower cost to the shopper). Offering something “free” to everyone is just structuring your retail price with a different cost basis.

Ken Lonyai
BrainTrust

Clearly free shipping is transitioning from an incentive to a standard practice. What’s most surprising is how fast the trickle down effect has taken hold, with many small and no-name m/e-tailers offering the perk at roughly $99 price points.

Death and taxes are a certainty, but shipping fees have become the new gray area that merchants are juxtapositioning over. In the not too distant future, I believe shipping fees for standard delivery will be the exception, followed by return shipping fees.

That means the next major battleground for the big players will be same day delivery with minor skirmish areas left for things like free gift wrapping.

Ben Sprecher
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Ben Sprecher
3 years 8 months ago

As Amazon continues to grow, its Amazon Prime service is a major engine driving its success. Free shipping is core to the Prime value proposition, and it is perceived by users (well, me at least) as both a benefit and as a guarantee, because I’m not going to take a bath on the shipping costs if I need to return something.

I see a split forming in the online world, partly around this issue of free shipping. Part of the online world is going to drive to be the ultimate low-cost source of stuff that you don’t need this second… and it will cut costs in every way it can (including by having paid, slower shipping). The other part of the online world is trying to just be as good or better than brick & mortar shopping in all ways, and free/express/same-day shipping is a way to level the playing field vs. the instant gratification of physical stores.

This all reminds me of a recent Dilbert cartoon … physical retailers need to try harder than ever to be better than the best online stores they compete with.

Tony Orlando
BrainTrust

Nothing is free, plain and simple, and online retailers can not do this without adding cost into the price of the goods. I deliver catering in my area to local business, and homes, and I always add $10-$20 for delivery depending on the mileage. The folks understand, and as long as the food is awesome, there are no problems.

Free is the most overblown word in marketing, and the consumers are getting confused as to what really is free. That being said, we are not going back to the good old days, and free delivery is going to become the norm (with added costs built in).

Bricks and mortar stores can develop a strategy to keep their pricing sharp, and showcase the difference vs online deals. Somebody has to pay the freight, and it will be the consumer, whether they realize it or not.

Max Goldberg
BrainTrust

Free shipping and free returns have consistently been important to consumers. That doesn’t mean that every online retailers needs to offer it on every purchase. It’s OK to require minimum order sizes, provided the order size required to obtain free shipping is not onerous. Retailers with a brick and mortar presence can also offer free returns to stores.

Retailers need to look at their category, products and margins before offering year-round free shipping and free returns. These costs need to be factored into the cost of doing business, and if margins will take too great a hit, consider minimum order size or free or discounted add-ons, rather than free shipping.

J. Peter Deeb
BrainTrust

It’s all about the competition. Free shipping is just another BOGO, another loss lesder, another way to compete. Shipping however is much more expensive than most promotions and the longevity of this offer will have to be weighed against the competition and the marketplace. Once in, it may be difficult to get out.

Mark Burr
Guest
3 years 8 months ago
It sounds somewhat like a broken record to me, (For those that can remember what a record was!), but it isn’t just about free. It is about execution. Any internet retailer can “Offer” free shipping. Not every internet retailer can exceed expectations in both being free and actually delivering. Zappos remains the best example possible, from my point of view. Their shipping is always free (Both ways). Yet, it isn’t that it is free, it is executed better than expectations – every single time. First of all, if they don’t upgrade you automatically to next day, it isn’t so bad. The likelihood of your purchase arriving in two days or less on standard shipping is over 90% based on my experience. In a recent email exchange with an upscale merchant about their shipping (10 days), I cited Zappos. Their response? “Yes, we know.” I won’t embarrass them by mentioning their name as they remain one of my favorite retailers. Nevertheless, they know the standard and realize they can’t meet it. It isn’t that UPS or FedEx can’t. They can’t. Execution. Execution. Execution. For those that utilize “Nothing is free” as an excuse, whether it be reality or not, I would… Read more »
Ellie Turner
Guest
Ellie Turner
3 years 8 months ago

I completely echo Bob Phibbs’ point. Retailers have to be prepared to deal with the rising costs associated with free delivery and returns, although many aren’t measuring this effectively.

Return rates are only going to get higher as online sales continue to grow, especially as retailers incentivize the customer to buy more with these free shipping offers – which means many customers will overbuy and dump the unwanted stock back to the retailer. By then it might be already be on sale, worn, and past its best, further adding to the retailers costs.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
3 years 8 months ago

Free shipping is what consumers expect today. Think about posts on eBay. The ones that grab a consumer’s attention first are the ones that say FREE Shipping. Even if the cost is higher for the item the free shipping sounds good.

I like the model Amazon uses with its paid “Amazon Prime.” Why not offer a free shipping model to consumers that are willing to pay a small upfront fee for the service ($9.99 per year for free shipping and returns). This also drives the consumer back to you for future purchases. As an Amazon Prime member I tend to first search Amazon before any other retail location on the web. I paid for the service so I want to get the most out of it. Could other retailers pull this off? It’s worth testing.

Is free shipping really free? The retailer has to bake that cost into the price somewhere.

Nikki Baird
BrainTrust

Free shipping seems like it’s becoming ante to play the eCommerce game – certainly it isn’t the profit center that it used to be. With the internet sales tax looming around the corner, I think we’ll see more and more retailers offering unconditional free shipping. I’ve heard more than few already say that they think – rightly or wrongly – that consumers were okay paying shipping when it was offset by not paying sales tax. But they think that when the sales tax is tacked on as well, that shipping cost will suddenly look really expensive.

On the flip side, I know plenty of retailers that have no trouble charging both shipping and tax. But frankly, I have wondered why store-based retailers haven’t pushed to offer free shipping much sooner than this – by forcing online competitors to also have to price shipping into their product costs, it puts store prices on a more even footing in comparison.

Robert DiPietro
BrainTrust

The real question around free shipping is whether the customer expects it or not. I think they do and it is becoming table stakes in e-commerce. Most customers realize that nothing is free and the price is somehow baked into the cost of merchandise, but are happy to not deal with an add-in cost to transact. Customer may also be willing to accept a purchase minimum…e.g. free shipping on orders over $50.

The most company friendly way to implement this is to make it a perk of being part of the loyalty/rewards program, so you at least get a better profile of the customer.

Matt Schmitt
BrainTrust

As many have pointed out, “free” is often more about perception and packaging than reality. In some cases, cost savings gained through distribution efficiencies are extended through to the customer, offsetting the shipping costs in part or full.

Some retailers may indeed choose to eat some costs in order to gain more transactions from the lucrative omnichannel customer.

As distribution efficiency increases continue to be optimized, I’d expect free returns to be included in more programs.

Cathy Hotka
BrainTrust

Customers really want frictionless commerce, and whatever steps retailers can take to make this happen are welcome. Neiman’s well-heeled audience doesn’t want to be tied up in shipping costs.

It’s interesting to watch retailers figure out how to translate customers’ desire for free shipping as a way to achieve their own ends, particularly around the holidays.

Craig Sundstrom
Guest

Everyone seems in agreement this morning:

(1)Free is becoming the standard, and retailers ignore it at their peril; whether it SHOULD be free or not, is of course another issue;
(2) “Free” is an illusion, but whether it results in a higher (base) price to the consumer or a lower profit to the retailer is not something you can predict;
(3) The final total price is what matters, but most people don’t like doing math.

As for NM – “Neiman Marcus previously waved shipping fees for web orders over $150.” LOL… as a practical matter I would think every order is over that threshold anyway.

Gene Detroyer
BrainTrust

Why is shipping consider an additional cost for an online retailer but rent and labor are not considered an additional cost for brick and mortar? Shipping is just a different cost.

This argument is silly. Shipping should be included in the price. Why make it difficult for the consumer? Just give them the bottom line. Shipping is no more an added cost than every cost the brick and mortar experiences operating their stores.

Or, let’s net our the cost of every product, online or in brick and mortar, and add the costs that exist to put products into the shoppers’ hands. Just imagine buying that piece of apparel, going to the checkout and being charged an extra $7 for rent, utilities, labor, and fixtures.

Lee Kent
BrainTrust

I’m just going to say it: It all depends! To some consumers, if they can’t get free shipping they might just go elsewhere, but is that true for all consumers? It all depends! If they are loyal to the brand, the product, think the price is good, many things can influence the buy.

For higher-end brands and products and loyal customers who spend a good bit with the brand, I do believe there is an expectation. For baskets above a certain level, sure.

Retailers must assess the cost vs advantage and make the right decision for themselves. So, it all depends!

Ed Rosenbaum
BrainTrust

I am not sure what true means these days. Somehow, somewhere I am going to pay for whatever I am getting that is free.

Jack Webb from the old Dragnet series said “Just the facts, ma’am.” That holds true today. Just give us the facts regarding costs. Then we can make the decision that is best for us individually.

Phil Rubin
BrainTrust
3 years 8 months ago

Free shipping is essential for most retailers who don’t have any other way to establish, much less deliver a core and even semi-unique value proposition. While shipping is “free” with Amazon Prime, it’s really part of a premium product that customers pay an annual fee for. Zappos, also part of Amazon, offers free shipping, but shoes as a category are not only high margin but also a tougher sell online.

Free shipping and returns should at least be merchandised and done in exchange for a legitimate opt-in and/or enrollment in a retailer’s loyalty program (e.g., as Staples and others offer).

Simply stated, “free” shipping isn’t free if it’s in exchange for customer permission and opt-in (or opt-up!).

Don Uselmann
Guest
Don Uselmann
3 years 8 months ago

Free delivery removes a barrier to purchase. With free shipping on returns, yet to be seen is the impact on return rates. And a segment of that is the individual who shops for sport, returning up to 100% of purchases. Will companies become more aggressive in ‘firing’ such customers? It will be interesting.

Martin Mehalchin
BrainTrust

I think this is table stakes for any retailer that wants to move large volumes online. The majors are in the best position to implement since they can leverage existing distribution infrastructure and scale.

Lee Peterson
BrainTrust

You just have to do it. Go ahead and build the shipping cost into the product later, but do it now. Every garment (for example) ever made has shipping built into it, just extend.

Of course, you’d better have private label on your side or you’ll get killed, but that’s an entirely different RetailWire topic!

Shep Hyken
BrainTrust

Free shipping is becoming a standard. It is a competitive move to grab business from traditional brick and mortar retailers. It makes it easy for a customer to buy from their favorite store, without leaving home – and without having to pay a fee (shipping) to do so.

As for returns, free return shipping is a confidence booster. If you don’t like it, it doesn’t fit, or it doesn’t work, there is no risk. The consumer loves that. All else being the same, if one e-tailer gave free return shipping and the other one didn’t, I’d do business with the one that offered the return policy. It’s part of the guarantee.

W. Frank Dell II
BrainTrust

The question of free shipping for internet orders was answered years ago when the drop off rate approached 90% for web sites charging for shipping. Online retailers may have a minimum, but it must be reasonable or the consumer will simply drop off the order.

Consumers shop the internet for low prices and they see shipping cost as increasing the price without value added. Buying online means the merchandise will arrive in a few days versus getting into their car and driving to a store and bringing the merchandise home.

The other online advantage has been not paying sales tax which states have been trying to get web sites to collect for them. Shipping and sales tax narrow the price gap. Online will have to add things like wrapping to keep growing, or the growth rate will slow down.

Roger Saunders
BrainTrust

As they used to say in the neighborhoods of New Orleans, “Ain’t no free lunch.”

However, offering an incentive of a bit of lagniappe – a wonderful Cajun term of endearment meaning “something extra” always works magic.

Neiman Marcus isn’t giving something away. They are merely providing the consumer with an easier path to purchase. Placing a minimum on an order is perfectly understandable. And, customers appreciate the opportunity to experience the treasured savings and relationship. It is especially useful in today’s economy, be it brick & mortar or e-commerce.

The offer of free returns follows as a natural condition to the free shipping, provided other standards are met.

Steve Montgomery
BrainTrust

As others have commented – there is no free lunch. Put another way – pay me now or pay me later. Someone has to pay for all these “free services.”

Either the retailer pays through a diminished bottom line (on a per item basis), the customer pays through larger purchase or increased retails, or they share the burden.

That being said, the word “free” has always had a magical quality about it in retailing and as long as the customers perceives shipping and returns are free then it will definitely impact their purchases.

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