The Chinese e-commerce giant will have $8 billion in cash after its IPO as well as valuable stock it can use for acquisitions. The ...
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ENutrition tested a variety of marketing programs in an effort to lure customers, including sending free gifts with purchases and offering discounts on orders, Gale says. But free shipping came up the winner. “Our research shows that shipping is the No. 2 issue for consumers who may shop online,” he says. “Most consumers still worry about using their credit card online, but once they cross that hurdle, the next issue is shipping. We decided to take that out of the equation by offering free shipping.”
In addition to meeting consumer demands for inexpensive shipping options, online retailers also offer free shipping to compete with one another. “It puts pressure on competitors,” says Cyberian Outpost’s Peck.
In traditional catalog retail, shipping often has been a profit center for companies. Consumers have been willing to pay shipping and handling charges for the convenience of not having to go to the store, says Forrester’s Williams. That’s true for customers shopping online as well, she adds. Catalogers Lands’ End Inc., with shipping rates of $3.50 to $15.95, and L.L. Bean, with rates of $3.50 to $7.50, have very similar shipping rates for catalog and online sales.
But online, the environment is much more fierce, and free shipping is a distinguishing factor. “Your competitors are just a click away,” Williams says. “Retailers have to consider whether or not they have to offer free shipping to be competitive.”
In one price battle, free shipping is helping a small bookseller named 1bookstreet.com stand out from its much larger competition. When Amazon.com, bn.com and Borders.com announced recently that they would offer New York Times bestsellers for half off the cover price, 1bookstreet.com followed suit. But Amazon and bn.com charge from $2 to $8 per order, based on the choice of service, plus 95 cents to $2.95 per item. And when consumers use price comparison engines to look for the best deals on the books, 1bookstreet.com comes up as the cheapest option because it also offers free shipping, says Robert J. Staff, chief economist at Zona Research Inc., an Internet consulting firm based in Redwood City, Calif. “People could start migrating to 1bookstreet.com from Amazon.com to save on shipping,” he says.
1bookstreet.com had been looking for a way to increase its customer base without incurring a lot of advertising costs when it decided to offer free shipping via the U.S. Postal Service last year. Launched last year as a limited-time offer, the promotion has generated such positive customer feedback and results for 1bookstreet.com that it’s been extended indefinitely, according to John Conroy, the company’s vice president of marketing.
Ukiah, Calif.-based Soda Creek Press, which operates 1bookstreet.com, patterns its online shipping options after the shipping arrangements it has set up for its catalog operations. The company doesn’t offer free shipping for catalog purchases, where shipping charges for years have generated revenue for the company. But 1bookstreet.com considers free online shipping an advertising cost, Conroy says. And unlike larger online booksellers, 1bookstreet.com doesn’t add per book handling charges to the cost of an order.
Not for profit
But can retailers sustain free or reduced shipping rates indefinitely? Kenneth Seiff, CEO at New York-based Bluefly Inc., an online clothing store, suspects they won’t have to. Bluefly offers a flat-rate shipping fee of $3.95 per order. “In the short term, it is very difficult to try to build market share and try to profit on your shipping policies,” Seiff says. “But in the long term, I think shipping rates will reach more of a happy medium, though I don’t think we will ever view it as a profit center.”
While free shipping is becoming more popular, Forrester’s Williams doesn’t expect it to become ubiquitous on the Internet sales channel. Instead, as Web sellers evolve their sites, their challenge will be to put shipping costs in more prominent locations where shoppers can view them easily. Some retailers do that already.
“Are all online retailers going to do away with shipping charges?” Williams asks. “Probably not. Are they going to try and pull shipping policies to somewhere earlier in the buying process? Yeah.”
Wal-Mart Stores Inc. of Bentonville, Ark., has a flat online shipping rate of $3 per order except on special items. In those cases, the shipping charges are included in the product descriptions. By comparison, Plano, Texas-based JCPenney charges $4 to $28 based on total weight up to 100 lbs.-a shipping charge customers will have to pay at checkout. Auction sites such as uBid and Onsale.com also offer shipping estimates in item descriptions.
Retailers will have to find a balance, Williams says. “They don’t want to scare consumers off on the front page, saying ‘We are charging you 40 bucks to ship this product.’ But at the same time retailers don’t want consumers to abandon the process at the very end.”
If the customer buying that backpack, computer case and rolling upright suitcase, for instance, would have balked at a $20 shipping charge, eBags could have lost out on a more than $400 sale. To avoid that, Nordmark says, the shipping bill is for now some baggage that eBags can afford to carry.
MargaretAnn Cross is a business writer in Allentown, Pa.