E-Commerce Shipping

E-Commerce SMBs: Free Shipping

Thu 19 Mar 2015
By Shan Lian


Check out http://bit.ly/1CEzfax for the full graphic from monetate.

Behemoth brands like Amazon and Nordstrom have set an early standard for free shipping that’s proved to be such a compelling turn-on to consumers that e-commerce companies of all sizes are coming under intense pressure to lower the cost of shipping.

Pressure at the top to outdo competitors via shipping costs couldn’t be higher. Target seems to be leading the pack, announcing recently that they now offer free shipping for all purchases over $25, instead of the previous $50. This puts them in a more attractive position than even Amazon, who offers free shipping only above $35 purchases. And even as the e-commerce world becomes more niche and accessible for potential merchants through an increasing number of entry points, the pressure from the e-commerce giants trickles down to medium-sized and smaller players.

These SMBs are forced to keep up in a world where customers place a high value on free shipping. Companies like Amazon have anchored consumers’ notion of what shipping can cost to $0, creating a specific expectation in consumers’ minds, affecting their future willingness to pay. Customers are actually 28% more likely to abandon their shopping cart if they’re faced with unanticipated shipping costs at checkout.

Contrary to the popular customer-held belief, e-commerce stores can’t easily provide free shipping, as shipping isn’t really ever free. Instead shipping costs are included in the product cost, meaning that in order to offer free shipping to customers, e-commerce companies must eat into their own profits or lose sales. For companies like Target, whose earnings profile and growth continue to be relatively robust, despite industry-wide drops in brick & mortar traffic, a potential short-term decline in profit margin due to adoption of a free shipping policy is typically compensated for by an increasing number of items placed per order.

Combined with the pressure put on them by the e-commerce giants’ moves to lower shipping costs, e-commerce merchants are caught in a dilemma between either losing customers through shopping cart abandonment or decreased profits through lowering shipping costs. However, many storefronts on platforms like Shopify and Etsy are testing the waters with free shipping in hopes of creating a stickiness with their customers. A compelling product line and loyal customers combined with free shipping could spell dramatic sales increases for these small businesses, as it has for Amazon’s Amazon Prime business.

The ultimate goal for SMBs is to ride the transition to the new era of omnipresent Free shipping! such that they can adequately compete against e-commerce giants. We’re hoping Shippo can play a role in that movement by empowering SMBs to grow their bottom-lines faster via simpler shipping processes and cheaper rates.

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