Free Shipping, Free Returns, Free Necklaces for Holidays
Retailers, both bricks and clicks, are planning to dig deep this holiday season to make sales, even if it comes at the expense of profits.
Free shipping (with some caveats) seems as though it’s almost become standard practice for online merchants. Others, such as L.L. Bean and Zappos, have raised the bar a bit further with free returns. So with the holiday season quickly approaching, what else is there for retailers to give away in the hopes of capturing a greater share of consumer purchases? How about jewelry?
According to an Associated Press report, Stauer, an online jeweler, is offering a $249 amethyst necklace for nothing more than a $24.95 shipping cost. The merchant offered a similar deal with a $179 pearl necklace in 2009 and found that about a third of its customers who went for the deal bought additional jewelry, as well.
“In this economy, you have to be outrageous in your offers,” Michael Bisceglia, president of Stauer, told the AP. “You have to shake up the world a bit.”
Getting noticed by being outrageous or other means is particularly important during the holiday season and there are plenty of retailers in addition to Stauer that are willing to do it. Last year, as discussed on RetailWire, TJ Maxx gained national attention for selling a limited number of 16 GB WiFi iPads for $100 below what they were being sold for elsewhere.
Retailers have always been known to sacrifice profits to make a sale. It can take many forms, including accepting a competitor’s coupons, offering price match/beat guarantees, special financing deals, etc.
“You may be making a $1 profit instead of a $3 profit,” Fiona Dias, chief strategy officer of ShopRunner.com, told the AP. “But you’re not losing a sale.”
Discussion Questions
Discussion Questions: Are retailers in panic mode about the holidays? Will “free” offers and other sales incentives be more prevalent this holiday season than in 2010?
I don’t believe retailers are in “panic mode”…it’s way too early and consumer spending has been modestly healthy this year despite the troubled economy. However, every year becomes a bigger challenge in terms of taking away market share from competitors. With higher commodity costs, apparel retailers are going to have to deal with slimmer margins since consumers seem unwilling to pay higher prices. And with the prevalence of coupon sites and “deals of the day,” most stores — whether bricks or clicks or both — will need to be very creative in order to break through the promotional clutter.
When a retailer can give away a $249 necklace for just the shipping, that sends the shopper a pretty strong signal about the true value of the item. I think a better way to go is to have more events to draw shoppers into your store, and make sure they have a fun, entertaining experience while they are there. Many people who come to an event and have a good time will buy items while they are there.
In my community, there is a large lifestyle center that was nearly out of business but has been revitalized primarily by holding a wide variety of events, and making sure shoppers are entertained when they visit the mall. A number of high-end retailers and brands are good at event marketing as well — no reason I can see why mass merchants can’t get better at this, instead of giving stuff away and having 70% off sales.
Free shipping = good idea. Free returns = bad idea. One of the tenets of modern economics is that free is wasted. That’s why the air is polluted, until recently there were no disincentives not to pollute it. Free returns makes it way to easy to return. Returns should bear a nominal cost so the purchase itself is willful. Going after volume is one thing but there is that little thing that still matters to any business in the long run: actually making money.
They are in panic mode and as well they should be. The consumer psychology isn’t there this season and it’s going to take a lot more to get customers to open their wallets. Free shipping and free returns is a great start at getting the shopper to spend more. As for the freebie, the key is to get people to actually spend money in addition to the freebie. You want the customer to think: “Well, I’m already paying $24.95 in shipping charges, I might as well get my money’s worth and add to the order.” I would say thought that if only 33% bought additional products with the original free offer, there is some fine tuning that needs to be done as that is not an acceptable ROI for offering a free product.
Lose a little on each sale, but make it up in volume! As absurd as this sounds, it seems to be the guiding principle for a lot of retailers in the age of Groupon. Spending profits to attract bottom feeding customers is not a good strategy to build sales. Unless you’re Walmart and can afford to sacrifice profit on select merchandise to get the customer in the door, offering compelling product and delivering an exceptional in-store experience is a much more profitable way to spend time and money.
Retailers learned from last year’s holiday season. The economy and purchasing habits are about the same this year, and it’s widely anticipated that what worked last year will work again. (And what didn’t, won’t.) It’s a year of promotional refinement, focus, and attention to detail. If last year signaled a back-to-basics approach to pleasing customers and selling more stuff, this year will be back-to-bedrock-basics at retail. No panic, just Merchant 101.
With so many major retailers adopting “free shipping every day” policies — including Target, Home Depot, Macy’s, Kohl’s, Gap, Old Navy, Banana Republic, L.L.Bean, Sephora, and many of the other retailers I track via the Retail Email Blog — we’re very quickly approaching a tipping point on free shipping. It used to be an incentive, now the absence of free shipping is an impediment. For that reason I expect more retailers to offer free shipping all holiday season this year to be on equal footing with the everyday free shipping retailers.
With free shipping now expected, free returns is the new differentiator — especially for fashion retailers. Already, a number of major retailers including Nordstrom, Piperlime, Urban Outfitters and Zappos offer free shipping AND free returns every day.
The economy is still very fragile across the US and in other key geographies. Consumers want more value for the spend than ever before. Retailers that offer the best value (price, service and selection, etc.) will reap the best revenues this holiday season.
Beyond panic, it is called desperation. The sad thing is those retailers that suffer from poor brand positioning fall into the trap of “giving it away.” Offering an excellent customer service experience coupled with outstanding selection and friendly return policies plus an easy to navigate web shopping/checkout is key. You don’t see luxury category retailers giving it away. Those retailers who do provide outstanding service, selection and strong price/value don’t need to do it either. It is a sad indictment on the lack of applying customer insight, true 1:1 customer relationship management that some retailers have to offer the power of “free” to everyone — including low profit margin buyers. Bad practices breed bad behavior. Best practitioners leverage customer insight to selectively offer free shipping based on threshold spend. Invitations to events and making it feel special with a commitment to additional personnel to provide outstanding service/support, entertainment, food and early access to new goods. Unique, differentiated events, offers and personalized communications, even outbound call outreach — now that’s creative!