In response to consumer demands for low or no-cost shipping and the increasing role shipping costs play in online purchase decisions, a growing number of top online retailers are planning free shipping promotions during the 2009 holiday season, the Wall Street Journal reports.
The moves come as a slew of industry studies and internal retailer data confirm that shipping charges rank as one of the biggest deterrents to online shopping in the current economic environment.
According to a recent survey by MarketLive and the e-tailing group, free shipping and free returns are the top-two factors influencing consumers’ online purchasing decisions.
Similarly, industry data also supports the results of a Paypal study last May, which found that 46% of shoppers said high shipping charges were the top reason why they abandoned their online shopping carts at the point of checkout.
Most recently, a Duke University study found that consumers are 4 to 5 times as likely to spend $5 for an item if either the shipping or the item is free, than they are to pay $2.50 for the same product that costs $2.50 to ship.
Retailers Roll Out Savings
Target Corp., Wal-Mart Stores Inc., and Amazon.com are among the top retailers offering free shipping promotions with significantly discounted prices on certain items. This week, Target matched moves by Walmart and Amazon to lower the prices of the season’s most popular book titles - and also offer free shipping.
Freeshipping.org, an ad-supported site that lists free-shipping promotions, expects to double the number of retailers participating in its Dec. 17 "Free Shipping Day." Last year, 250 stores including JC Penny Co. and Pottery Barn participated in the program. This year, Toys “R” Us will be among the retailers joining for the first time.
In addition to offering some more standard free-shipping offers, Amazon is adopting a different approach to online shipping through its Amazon Prime program, which costs $79 per year and allows for automatic two-day shipping at no extra cost. The program has attracted an estimated two-million members, who have subsequently increased their spending by about 20%, according to a PiperJaffray survey.
Last week, the online retail behemoth launched a same-day delivery service in seven cities. The service provides a steep discount to Amazon Prime members.
While some retailers such as Zappos.com and Shoebuy.com have adopted the practice of never charging customers for shipping at any time of the year, some online retailers have balked at the extra costs involved.
Discount retailer Kohl’s recently stopped sending out free-shipping codes to major customers after the promotions appeared on discount websites, a move that resulted in a backlash against the company on its Facebook page.
Recession Drives Online Shopping
The economic recession is driving more consumers to go online to make purchases - where they can comparison shop and get the deals they want, a PriceGrabber.com survey from March 2009 found.
According to that report, 53% of online users said the recession was causing them to spend more time on the internet, where they were increasingly researching purchases to suppress impulse buying and shopping for deals that did not include shipping fees or sales tax.
The report also revealed that 75% of online consumers look to purchase from retailers that do not charge taxes or shipping fees.
Retailer Shipping Costs Increase
The move to remove shipping charges to stay competitive in online retail comes at a time when shipping companies are raising their rates for retailers. Both United Parcel Service and the US Postal Service - both of which are used heavily by retailers - have raised rates on many of their shipping services within the past year.
Tactic vs. Strategy
Though the avalanche of free shipping offers already has begun, Bob Angus of the E-commerce Evangelist blog, cautions retailers not to get trapped in the situation where free shipping becomes their value proposition to customers.
"Free shipping is a tactic, not a strategy or your value," Angus warned. "Look to drive a certain behavior with a tactical offer, like increasing conversions, boosting average order size, promoting more profitable products, or countering an aggressive competitive campaign."
Angus added that if free shipping evolves into an expectation or the primary value, things could become much more risky for online retailers - and things will be harder to reverse if they ever need to begin charging again. "In most cases, the financial pressure of lost margins is not sustainable and competitors can easily respond and counter this tactic."
