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Offer delivery options based on cost and convenience instead of pandering to old expectations of free shipping no matter what.
The widespread adoption of free shipping was largely a reaction to “free” two-day shipping by Amazon, a feature of their $79-per-year loyalty program called Prime that launched in 2005. Since then, free shipping has gotten a little out of hand. Today, 66% of shoppers expect free shipping when buying online — no matter what.
For some companies, offering free shipping in a calculated way with minimum order thresholds can have a positive impact on growth. Just look at Amazon. They experimented with this two decades ago when their competitor Buy.com was offering free shipping for every purchase, regardless of order size.
"It's very expensive to do this,” said an Amazon spokesperson back in the day. “We'll find out if the customer response is great enough to make it work.”
Turns out, it worked. Amazon still offers free shipping today based on thresholds while Buy.com is no more. However, basing business decisions on the success of Amazon is unwise. According to an empirical study that observed the impact of free shipping on purchase volume:
“Promotions such as free shipping and free shipping for orders that exceed some size threshold are found to be very effective in generating additional sales. However, the lost revenue is substantial enough to render such promotions unprofitable.”
Yes, logistics is far from free. It’s why Amazon took great strides in finding their sweet spot for thresholds and why they still make customers pay to become a Prime member. It’s also why they started experimenting with charging for returns to cover reverse logistics costs last month. This came shortly after Zara and other retailers started charging for returns earlier this year.
Finally, the hold on the tug-of-war rope for “free shipping no matter what” that shoppers once commanded is starting to give. But instead of pulling back, businesses can give shoppers something even better than free shipping: convenience.
Target does an incredible job with this and it’s how it competes with Amazon and Walmart. On every search result page, category page, and product detail page, Target asks an important question…
If you answer this question on a search results page or category page (example), the page will refresh to display products that are available for that option. Even better, short descriptions under each product card confirm the availability of a product based on your specified delivery option.
Implementing an omnichannel fulfillment system that seems so simple requires work on the inventory management side. You don’t need to create a homegrown inventory system like Target, but you do need a system that can track the same inventory across different locations. Warehouses, sortation centers, local stores — all the way to the doorstep in case of returns.
Once you have inventory visibility, you need fulfillment capabilities. Target acquired Shipt to offer same-day delivery — part of a logistics-driven loyalty program for $11/month — and has large contracts with UPS and other carriers to offer shipping. But you can leverage carrier marketplaces to offer convenient delivery, no expensive acquisitions or contracts required.
Imagine partnering with DoorDash to offer same-day delivery at a cost similar to ground shipping. This provides so much more value to customers and would encourage them to return to you over competitors that don't offer same-day.
With a carrier marketplace and good inventory management, any business can create a matrix around cost and convenience in their backend logistics operations and let customers decide which fulfillment option is best for them. This logistics-driven approach to buying can become a differentiating feature for retailers and B2B businesses alike.
Instead of asking customers which products they want, the question becomes: When do you need it, and how much are you willing to pay to receive it by then? And remember, if they mention “free,” make them earn it, either by buying more or joining a loyalty program. This is what’s needed to create a sustainable business that respects the cost of logistics operations as much as the satisfaction of customers.