Can retailers escape the scourge of free shipping?
Presented here for discussion is a synopsis of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
If retailers are hurting today, among the wounds — both self-inflicted and imposed from outside — is free shipping. On the demand side, customers are increasingly expecting free delivery and even free returns. The problem for retailers, of course, is that free shipping cuts deeply into profits.
Given that online shopping is woven into the habits of most U.S. shoppers, might retailers be able to cut out free shipping?
Ironically, the answer may lie in a phenomenon best illustrated by Amazon.com. Prime is promoted as a way to get “fast, free shipping and more,” and many customers themselves refer to the service as being free. But of course, they are paying $10.99 a month or $99 per year for their “free shipping.” Amazon and other mega-retailers can also negotiate lower shipping rates.
One way to side-step the free-delivery trap is to give customers another system of options and incentives “to try to get the customer once again to bear the cost of that last mile,” says Wharton marketing professor Barbara E. Kahn, “so even if you are shopping online, if you pick it up in person in the store, that saves a lot of money.”
Shoppers might be offered a better price on an item if they are willing to wait until a delivery truck is already scheduled to come to their neighborhood.
The extent to which retailers are being threatened by free shipping depends on whether the retailer addresses “fast shopping” akin to the Amazon experience or “slow shopping,” according to retail futurist Doug Stephens.
“If you’re a brand about slow shopping, it’s about having a rich, immersive, tactile and maybe even emotionally connected experience, and then the emphasis is taken off [of free shipping],” said Mr. Stephens.
Ms. Kahn doubts that free shipping is going away, but says the economics of it will be hard to sustain without some mitigating factor.
“I do think there will be some kind of shake out,” she said, “and then it’s maybe you get free shipping, but you are paying a subscription price, or the price is built in somewhere else.”
Discussion questions: How can retailers reduce consumers’ expectations around free shipping or at least lessen the costs involved? Do you see incentivizing in-store pickup, slower delivery times or other options mitigating the free-shipping expectation?