Shipping a product to a customer’s home (or to the home a gift recipient) is a huge convenience that can save the customer nearly an hour (especially if the store is out-of-stock at the time of the visit). This should have a value of $25 or more to our average customer (the average hourly wage is $18 nationally) for the time savings, plus the gas/wear and tear on the car, etc. Therefore a $5-$10 shipping cost is a modest price to pay. Furthermore, customers tend to be very focused on product pricing – it is largely a zero sum game – if the customer does not pay for shipping, the retailer could try to make it up with a higher product price, which is not going to help an online retailer compete against a store. While it is tempting to offer free shipping, I think it is generally bad for the direct-to-consumer industry to give away something of such value – as consumers, we tend not to fully appreciate things that are free. I am also skeptical of research that indicates that free shipping is highly valued by shoppers – if a choice were included for free merchandise, I suspect that would score even higher.

In my former life I was a research analyst covering the retail industry for Goldman Sachs and spent a lot of time on these types of issues. My experience was that promotions are like drugs – they create dependencies – customers will certainly respond, but will also defer purchases in order to take advantage of the special offer – i.e. wait for the sale. Consequently, once you offer it, it is difficult to take away. Amazon has taken a more intelligent strategy than most – they pay a sharply discounted shipping rate on many of their shipments because of the US Government’s subsidy on “media mail” via USPS – they also offer the discount all the time and have it tied to an attainable pricing threshold – given the millions of products they offer, their customers have a relatively easy time finding things to buy to surpass the threshold. They also sell name-brand merchandise that is heavily promoted by the manufacturer, therefore demand already exists and Amazon does not need to spend much money on advertising – price is a major customer motivator, so free shipping would work.

At UncommonGoods, we sell items that most people have never seen before and do not need. They are often handmade or recycled, they are not found many other places and have no vendor/manufacturer advertising, so price is not the primary motivator for our customer. For these reasons, we have not offered free shipping.

I do think rising fuel costs will make free shipping much more expensive for online retailers this holiday season and will likely limit the amount of offers or lead to an increase in the dollar threshold level. Even so, the slower spending environment may cause more retailers to promote more aggressively and this is certainly a promotion that generates a response. In spite of the increases that we have paid in shipping costs, we have not raised our shipping prices in years and have no plans to either raise our shipping prices or offer free shipping this holiday season. We will work to attract customers the old-fashioned way – with great merchandise that they will not find elsewhere, combined with outstanding service and competitive prices.

Note from Shop.org: At the Shop.org Annual Summit, Timberland’s Troy Brown will be moderating a related roundtable titled “Free Shipping: Customer Centric or Lost Profit?” scheduled for Wednesday, September 16 at 2:30 PM in Islander Ballroom G. If you haven’t registered for the Summit yet, what are you waiting for? Go to http://www.shop.org/summit08.