Ecommerce Free Shipping Case Study

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It is not necessary for marketers to give goods away for free, but things like free shipping and free returns both serve two important purposes in online retailing. The first is that they lower a critical cost barrier between online retailers and offline ones. Consumers may or may not incur costs associated with going to be store to buy something (depending if they walk or not) but these costs are basically ignored by the consumer. The gas used to drive to the store is never factored into the purchase decision. It is not like that with e-commerce. Consumers see added charges for things like delivery and they realize that the goods are not cost-competitive. A price-sensitive consumer will quickly realize that the shipping charge is essentially the charge for the convenience of buying from home. For the online retailer, this added cost makes them go from being cost-competitive with offline shopping to a situation where they have a distinct cost disadvantage.

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As a consequence, the e-commerce company almost has to offer free shipping in order to entice consumers to purchase online vs. offline, and this is double true for goods that are easy to acquire offline.

Returns work on a similar principle. The difference is that consumers do not always make returns. But what they want is a means of returning goods that is hassle-free. Hassle-free returns are used as a marketing tool by offline companies as well -- Nordstrom is a famous example. For online retailers, free returns are not going to be expensive because most people are not going to go to the trouble, but they allow consumers to have a higher degree of confidence in the transaction. That is the role that returns play for most consumers -- a safety net. If they have to pay a fee to avail themselves of the safety net, that increases the risk associated with the purchase. Free returns lower….....

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