The direct marketing industry has been scrambling for information since L.L. Bean began offering free shipping to the United States and Canada on March 25, 2011. How will this affect retailers? Should they all offer free shipping to compete?
Most companies are asking themselves not “should” they offer free shipping, but “if” they will be able to. Shipping is a big expense for companies and eliminating shipping fees could turn them from profiting to losing. Wilson and Ellis Consulting President, Debra Ellis, says that most companies offering free shipping will essentially have to reduce services visit http://freeshippingworldwide.org/dinodirect/.
“Merchants are already reticent to invest in improving customer service because operations are considered an expense,” she says. She predicts a reduction in services, “because shipping income and costs are typically allocated to the operational budget. In the past, an efficient operation could be a profit center, but not anymore.”
Bill Kuipers, President of Operations Consultancy at Spaide, Kuipers and Company, points out that “shipping is the second largest cost center for most direct merchants, with labor being number one,” according to an article on the Multi Channel Merchant web site. In the same article, Kuipers adds that “if a merchant has a handle on its shipping contracts, it can make such free shipping offers work. There’s a balancing act involved as companies look to eliminate or reduce shipping costs. If they can manage their carriers tighter and make some other budgetary sacrifices, they can offer free shipping without a lot of internal damage.”
Kuipers believes that retail giants like L.L. Bean will be more likely to be successful managing shipping accounts to recoup the costs of this venture than other retail companies. Luke Knowles of the Free Shipping web site says that companies offering free shipping will be able to make up the costs by saving on marketing, because free shipping is a draw by itself. They should also be able to “expect sales volume to go up because of less abandoned shopping carts,” Knowles says. ”We’ve already seen a lot of great publicity for L.L. Bean because of this move to free shipping all the time.”
L.L. Bean spokesperson Carolyn Beem says that when they test marketed their free shipping policy, they saw that most people were willing to upgrade their free shipping to the two-to-five day shipping option anyway, costing the company nothing. However, Knowles points out that this testmarketing was conducted during the holiday season when people are concerned about receiving their items in time for Christmas, and they “probably won’t see those types of results earlier in the year.”