Is There An Ultimate Cost of Free Shipping?

This year, Amazon’s loyalty program, Amazon Prime, taught the B2C world that consumers would commit by paying upfront for free shipping for all orders. 

So, this year, Cyber Monday became “Free Shipping Monday.” Now free shipping is the expectation by consumers with  80-plus percent of online retailers offering it.

But what’s the cost?

Let’s face it.  Free shipping in online retailing is like a drug that lures consumers.  The consumer may buy for a one-time fix.  But few will come back without the next fix.  For many retailers, their margins cannot handle giving away free shipping long term – without a longer-term consumer commitment.

To make up the cost of the free offer, retailers must find a way to entice the consumer to fill his/her shopping cart with high-margin items.  And, through it all, unlike true loyalty programs, like Amazon Prime, the consumer has not made a commitment to the brand.

The consumer has only made a commitment to shopping on the web, or web loyalty, rather than brand loyalty. Web loyalty means the consumer will jump from site to site, and brand to brand, just seeking a deal.  While customers seeking the deal-of-the-day may buy more from many retailers, the retailers’ margins will erode quickly and impact the bottom line. 

Brand loyalty means that we, as retailers, are deeply engaged with the consumer, and in turn, the consumer is engaged with our brand. Online retailers are going to need to go to the next level.  To do so, they must get customers to invest some money and commit to a highly customized service that offers free shipping on a continuity basis along with compelling benefits specific to the brand.  This will drive repeat purchase and brand loyalty. 

In the next 12 months, we will see that the retailers that will flourish will be ones with the right strategies to drive consumer loyalty with convenience, incredible values, and robust everyday savings.  

The retailers that do not may end up paying the ultimate cost and not be here for Cyber Monday 2011.

Author: Rita DiPalma is the Senior Vice President of Brand Magnet, the company that created the next generation of online loyalty marketing solutions. In 19 years, she has managed online membership and loyalty programs for her own brands, and has worked with most major online retail brands managing programs in membership and loyalty. Her hands-on experience is unique. Few executives have managed both online and offline programs for companies they ran, plus implemented those programs for top brands as Rita has done.