Free Shipping – SAGE Business Researcher

Can retailers survive without offering it?

Executive Summary

Free shipping for online purchases is increasingly an expectation that retailers must meet to make a sale. Amazon has become the world’s largest online retailer in part because of its Prime program, which offers members free two-day shipping on all purchases, no matter how inexpensive, for a $119 annual fee. Amazon’s success spurred competitors such as Target, Walmart and Best Buy to offer their own free-shipping deals during the 2018 holiday season. Experts point out that free shipping is not totally free; many consumers either pay fees to membership programs or add items to their online shopping carts to meet the free-shipping threshold. Yet customers increasingly demand some form of free shipping, and close to half of those surveyed last year said they would abandon a purchase if they discovered at checkout that they would have to pay for shipping. Millennials are more likely to expect free shipping than other age groups.

Some key takeaways:

Amazon Prime members spend on average more than twice as much on Amazon as non-members.
Half of all U.S. households now subscribe to Amazon Prime, and the program has 100 million members worldwide.
Almost 70 percent of online shoppers say they expect free shipping even if their purchase is less than $50.

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Resources for Further Study

Bibliography

Books

Stone, Brad, “The Everything Store: Jeff Bezos and the Age of Amazon,” Little, Brown and Co., 2013. A business journalist chronicles the origins and rise of the e-retail giant and its founder.

Articles

Bulger, Stephen, “How to Offer Free Shipping Without Going Broke,” PracticalEcommerce, April 10, 2012, https://tinyurl.com/yamwagmh. An executive for an online fulfillment company says no one-size-fits-all approach works for retailers offering free shipping and offers a slew of options, ranging from two-day free shipping to free shipping with a minimum purchase.

Enright, Allison, “Amazon Prime membership growth slows in the US,” Internet Retailer, July 16, 2018, https://tinyurl.com/yczm6uer. New research finds membership growth is declining for the $119-a-year club, which offers free two-day shipping and some free videos to members. The reason: The majority of U.S. online shoppers already have joined.

Siegel, Rachel, “Amazon just upped the ante in the race for free holiday shipping,” The Washington Post, Nov. 5, 2018, https://tinyurl.com/y9ovbm7p. A journalist looks at the free-shipping wars among Walmart, Target and Amazon, quoting analysts who predict Amazon will convert millions of new customers to its Prime membership after offering free shipping to all customers for a few weeks.

Ungerleider, Neal, “Free Shipping Is A Lie,” Fast Company, Nov. 1, 2016, https://tinyurl.com/j2p22tc. The author reviews the true cost of “free” shipping, examining how retailers are building their own shipping operations, negotiating with delivery services and offsetting the price of shipping with incentives for shoppers to buy more.

Reports and Studies

“Customers want to find what they’re looking for, and say online shipping should be quick and free,” National Retail Federation, Jan. 16, 2018, https://tinyurl.com/ybuhw8zd. A quarterly report by the retailers’ association reveals that 68 percent of consumers expect free shipping even on purchases under $50.

“2018 Holiday Retail Outlook,” Alliance Data, 2018, https://tinyurl.com/y8vafzql. Researchers predicted the 2018 holiday shopping season would be the largest since 2011 and that most customers would shop both in a store and online.

“2018 State of Shipping,” Shippo, 2018, https://tinyurl.com/y78jefp9. In an annual survey by a Web app for shipping, researchers found that two-thirds of small and medium-sized retailers offer some type of free shipping and 75 percent say shipping costs are their biggest challenge.

“UPS, Forrester Research Reveals Free Shipping Trends,” Multimedia Merchant, June 22, 2011, https://tinyurl.com/y6vrh3qj. Retailers believe free shipping gives them a competitive advantage, according to a research firm. They also believe that free shipping can result in unexpected labor costs and make buyers reluctant to shop without it; premium-shipping clubs and boosting product price on free-shipping items is popular among retailers; and retailers that count free shipping as a marketing cost tend to offer it more frequently.

Chaffey, Dave, “Amazon case study – 2018 update,” Smart Insights, Aug. 14, 2018, https://tinyurl.com/yb9ccwwr. A digital strategist updates his periodic examination of Amazon’s business strategy, revenue model and culture of metrics and offers a history of the online retail giant.

The Next Step

Amazon Prime

“Amazon launches new autonomous self-delivery device called Scout,” Tech Startups, Jan. 23, 2019, http://tinyurl.com/yagtvwsf. Amazon is unveiling an autonomous package deliverer, about the size of a water cooler, designed to travel on sidewalks with customer packages.

Haddon, Heather, and Laura Stevens, “Amazon Plans to Add Whole Foods Stores,” The Wall Street Journal, Dec. 31, 2018, https://tinyurl.com/ybaem8yv. Amazon is expanding Whole Foods locations so the stores will be able to use the company’s two-hour delivery service, Prime Now.

Reisinger, Don, “Amazon Prime Has More Than 100 Million U.S. Subscribers,” Fortune, Jan. 17, 2019, https://tinyurl.com/ya6u3cco. The number of Amazon Prime members grew by around 11 million people in 2018, according to market research firm Consumer Intelligence Research Partners (CIRP).

Competition

Green, Dennis, “Amazon will soon lose the biggest reason to pay for Prime,” Business Insider, Jan. 21, 2019, https://tinyurl.com/yaye9ppd. As Walmart and other retailers expand two-day free shipping options, Amazon will have to improve Prime’s benefits to stay competitive, says a Business Insider senior reporter.

Premack, Rachel, “FedEx’s new service delivers online orders hours after they’re placed — and it shows that Amazon Prime isn’t special anymore,” Business Insider, Jan. 22, 2019, https://tinyurl.com/y7h646h8. FedEx is now offering next-day or two-day shipping for orders placed as late as 2 a.m. within the continental United States.

Ziobro, Paul, “Amazon’s Pitch to Woo Shippers: Fewer Fees Than FedEx, UPS,” The Wall Street Journal, Jan. 23, 2018, http://tinyurl.com/yaw4oeb2. In an effort to cut down on fuel surcharges and delivery fees, Amazon has launched its own home-delivery service, bypassing traditional shippers such as FedEx and UPS.

Organizations

American Retail Shippers Association
100 Quimby St., Suite 2, Westfield, NJ 07090
1-908-301-9888
www.americanretailshippers.com
Association that represents importers and exporters of all commodity classifications; supports members’ transportation and supply-chain needs.

Council of State Retail Associations
664 Sandpiper Bay Drive, S.W., Sunset Beach, NC 28468
1-215-499-6284
www.councilsra.com
A portal for communications among state retail associations across the country, focusing on legislation and regulations affecting the retail industry.

FedEx Corp.
3875 Airways, Module H3, Department 4634, Memphis, TN 38116
1-800-463-3339
www.fedex.com
International shipping company that specializes in overnight delivery of parcels and letters.

National Retail Federation
1101 New York Ave., N.W., Suite 1200, Washington, DC 20005
1-202-783-7971
https://nrf.com
A trade association that provides education, advocacy and research for the U.S. retail industry.

Parcel Shippers Association
PO Box 450, Oxon Hill, MD 20750
1-571-257-7617
www.parcelshippers.org
An association whose mission is to foster competition in the parcel delivery market; it offers legal and political representation and informs members of carrier rates.

Retail Industry Leaders Association
1700 N. Moore St., Suite 2250, Arlington, VA 22209
1-703-841-2300
www.rila.org
An association that represents retail industry executives and takes positions on trade policies that affect retailers’ supply chains.

United Parcel Service
1835 Blue Hills Drive, N.E., Roanoke, VA 24012
1-800-742-5877
www.ups.com
An international shipping company that delivers 5.1 billion packages and documents annually and generated $66 billion in revenue in 2017.

U.S. Postal Service
475 L’Enfant Plaza, S.W., Room 4012, Washington, DC 20260-2200
1-800-275-8777
www.usps.com
Service that delivers 47 percent of the world’s mail, reaching 157.3 million delivery points nationwide in 2017.

DOI: 10.1177/237455680504.n1