Wednesday, April 09, 2008

Is it the End of Free Shipping for Online Purchases?

A number of bloggers and news outlets have asked that question, based on a recent Shop.org report from Forrester Research.

The New York times said; "... those shoppers looking for a bevy of free online shipping deals may not find them as plentiful as they did last year. The study, which surveyed 125 online retailers in February and March, showed that merchants are less interested in using such promotions this year. While 85 percent of online retailers said they used some shipping incentive in the past year, just 35 percent said they would focus more on these types of deals in 2008".

The Silicon Alley Insider says; "Good news: Despite the sluggish economy, online retail sales are expected to rise 17% this year. Bad news for consumers: Online retailers are growing weary of free shipping, online coupons, and other carrots to drive sales."

Sure, the costs associated with shipping orders are rising, putting pressure on online retailers to reconsider their free shipping offers, but with an economy on the edge of recession and consumers looking to save money everywhere they can, dropping "Free Shipping" offers doesn't make sense.

IMO, those retailers that maintain or expand their "free shipping" offers will reap the benefits. Why would you drop "Free Shipping" when the economy is in such turmoil? Free shipping will be your competitive advantage.

This trend does pose problems for small online sellers and especially eBay sellers, as the cost of offering "Free Shipping" is prohibitive. This may be a problem for the eBay marketplace as consumers start to look elsewhere for those Shipping deals.

Amazon, of course, is positioned well to take advantage of the situation. As online retailers give up their "Free Shipping" promotions, their customers will look elsewhere and Amazon certainly will be among the top choices; with their Super-Saver shipping and Prime shipping programs.

I am a small seller of DVDs, CDs and Video Games and would fall into that category of sellers that would feel the pressure of rising shipping costs, but since I only sell on Amazon, using their FBA (Fulfillment by Amazon) program, my business is positioned perfectly to take advantage of Amazon's "Free Shipping" offerings. I get charged the same low fee, whether my customer pays for International shipping, Expedited shipping or gets "free shipping" and the fee is far less than it would cost me to ship it myself. If you sell on Amazon and are not taking advantage of FBA you are missing a great opportunity.

"Free Shipping" will not go away, but those online retailers who don't offer it may.

Just my 12%

4 comments:

oldschool said...

Randy,

Great post!

As far as ebay goes, I still hold out hope that they will force all media sellers (dvd/cd/video games) to charge a flat low rate for shipping, just as Amazon always has. I'm going to ebay live this year and preach that message to any ebay employee I get 5 seconds with. I mean no malice toward any other sellers, I just think if enough volume sellers stop "gaming the system" via shipping charges, the ebay media marketplace as a whole will gradually become healthier for all sellers.

If they would have just had those controls in place years ago, the media catagory would not have been wrecked. The Costco/Southwest Airlines kamakaze model of business wouldn't have been worth pursuing.

IF ebay were to force sellers to cap shipping prices for a dvd/cd to $2.95.....I realize that the biggest ebay media sellers with the best volume discount shipping rates with DHL would still be around and control the marketplace pricing (this is the case over at Amazon right now)-but IF ebay were to cut these sellers overall total business profit margins/cash flow source in this way, I wonder how long it would be worth it for them to only make maybe just cents per sold piece? Your thoughts, sir?

Frank D said...

Oldschool,

We could probably discuss this for a long time. I don't disagree with you. The problem is if they went to an Amazon model of, no listing fees and cap on S&H the really big guys would just load up their stores and come on over.

There are several $200 million a year companies that buy direct from the studios who would love for that to happen and soon they would take over eBay like they have Amazon.

The media category gravy days are gone never to return. Sad to say.

Randy Smythe said...

Oldschool,

I would have to agree with Frank. I wish it was as simple as capping the S&H unfortunately I don't think that would help.

Media on eBay is forever broken. I don't see anyway to fix it for the little guy.

oldschool said...

Thanks, guys, good points.

Frank, I think as long as ebay has prohibitive insertion fees upfront, alot of the biggest companies out there (who buy directly from the studios) would continue to avoid ebay if they capped shipping/handling.

Also, I had a talk recently with some players at one of these bigger media companies, and they're pretty aware that ebay these days isn't really a valid means of branding or customer aquistion anymore; not for media sellers, when the pricing is at rock bottom and there are more sellers than buyers!