Americans are completely addicted to free shipping. It just makes us spend more.
- Most Americans won't buy something online unless shipping is free, according to a new study.
- Free shipping is never really free, and retailers devise clever ways to cover the cost.
Americans' addiction to free shipping is getting worse. And while it may feel like a bargain, shipping experts say it most likely ends up being quite the opposite.
According to new data from shipping technology firm Shippo, 62% of Americans refuse to buy something online without free shipping. In 2020, that number was 40% — evidence that our addiction to free shipping is only intensifying.
"It's a conundrum," said Krish Iyer, vice president of strategic partnerships at Auctane which owns ShipStation and Stamps.com. "Having some type of free shipping option is now a permanent expectation."
But someone has to pay for shipping even when it looks free. And at the end of the day, it's probably you.
Free shipping can slow down packages
Retailers do negotiate prices with package carriers like UPS and FedEx to try to make shipping costs easier to absorb while still turning a profit, but over the last few years, shipping prices have increased faster and more frequently.
"The cost has gone up exponentially – with new surcharges being added, rate increases occurring more frequently than once a year, and new rules in terms of weight and dimension limits," Iyer said. In Shippo's poll, 41% of online sellers said shipping expense was their number one challenge.
In some cases, retailers are choosing to ship slower to save money, rather than charge for shipping, Nate Skiver, CEO of LPF Spend Management, who used to manage shipping for Gap, told Insider.
That's why the slower shipping service out there from carriers like DHL and UPS, where most packages are passed off to the post office for delivery are growing at the same time Amazon is boasting about deliveries made "within hours."
"The option is still there, the customer just has to wait," Skiver said.
Does free shipping make you spend more?
Retailers have different priorities when it comes to influencing consumer behavior. Some want big order sizes with many items. Some want lots of small orders. Some want to nudge certain items that bring in more profit over others that bring in less. And since they know free shipping is such a prerequisite for shoppers, they also know that they can change our behavior with minimum purchase requirements.
Psychologists call it "loss aversion" — when it becomes preferable to "gain" free shipping by adding more items to your cart than to "lose" money on shipping.
Nearly half of the consumers in Shippo's poll said they are willing to meet a minimum purchase value to get free shipping. The minimum will likely be set by the retailers based on the average price of the product they sell and the number of items that would help justify the shipping, Iyer explained.
Retailers have also started raising the prices of the products themselves with shipping costs in mind, he said.
Plus, since consumers aren't willing to pay for shipping, retailers are constantly trying to figure out what extras they will pay for. An exact delivery date might be one thing retailers start to try, according to Iyer.
"Many consumers are now as interested in date and time-specific delivery as the shipment itself being free," he said. Some retailers are now charging consumers for a date-specific delivery versus a mode that might say "between 3-7 days."
Good news for them: Americans are also addicted to package tracking, so a definite delivery day may add to the dopamine hit.
- Travel Boom: India spends 2X of pre-pandemic level on Airbnb with Goa leading the charge
- Swiggy disburses over Rs 450 cr in loans to 8000 restaurant owners
- Hyundai Motor India says all its vehicles to come with 6 airbags
- Earthquake jolts Delhi and other parts of northern India
- World Bank pegs India's FY24 GDP growth at 6.3% as global headwinds emerge