Categories: Business & Finance

What Free Shipping Really Means For The Consumer

September 21, 2015

Online shopping has simplified our lives, and as a result we’ve come to learn the terminology associated with e-commerce. One area of confusion is free shipping. We’ll see a product online and notice it offers free shipping. Score! But do we actually know what that really mean for both the business and the consumer?

At face value, yes, free shipping means whatever you ordered online doesn’t have shipping charges for you. But there are so many other things to consider when it comes to free shipping.

Hidden Fees?

Let’s face it, free shipping is a marketing ploy. When a business offers free delivery, consumers see what the price is listed as what they’re going to pay. Unlike sales tax, we can’t calculate shipping. That’s up to the vendor to figure out.

When big companies like Amazon realized free shipping for everything on their site was causing them to lose money, they put a limit on when you can get it. For instance, on Amazon today, the limit for free shipping is $35 for standard delivery. So if you wanted something for less than the minimum total of $35, you’d either have to add another item, or pay the shipping costs.

Another hidden fee may be membership. Amazon offers Amazon Prime as their premier shopping membership. What made it so attractive to consumers was the fact you could get two-day shipping for free. But was it really free if you’re paying $99 for membership?

Because of the hidden fees that come with free shipping, it’s not truly “free”. It’s often a well-done marketing tactic to attract customers. The tactic was so good that almost 90% of online retailers offer free shipping.

Shipping for the Vendors

You’d think that for companies offering free delivery, it’d mean they are losing money, correct? Yes, and to some extent, no.

It’s true that companies lose money on shipping. Amazon spent $6.64 billion on delivery in 2013 and only made about $3.1 billion back for paid shipping. But for a company as big as Amazon, they have enough revenue to cover that loss as a result of increased minimum shipping prices.

Big companies may have contracts to subsidize shipping by as much as 70%. Of course, since the seller is paying the shipping company, it leads to the consumer paying the brunt of it in higher minimums.

For smaller vendors, it’s a different game. They probably won’t have their own shipping service and rely on third parties to help get their goods around. One solution is to find used or commercial trucks for sale at a place like Arrow Truck Sales and use their startup revenue to fund their own shipping. Others will still rely on third party shipping, but will try to incentivize customers with deals and other sales.

So just like many things in today’s society, just because it has “free” in front of it, doesn’t mean it’s really free. Free shipping still costs you extra. Keep that in mind the next time you jump at getting a coffee maker that’s free shipping eligible.

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