Free shipping

Free Shipping is a marketing scheme used primarily by online vendors and mail-order catalogs as a sales gimmick to attract customers. [ [http://www.nytimes.com/2008/07/05/business/yourmoney/05shortcuts.html?ref=business Shortcuts - ‘Two for One’ ... ‘Free Delivery’ ... Hooked Yet? - NYTimes.com ] ]

Online sales model

Internet vendors benefit from a simplified sales model as compared to traditional brick-and-mortar stores. By storing goods remotely at a warehouse location and shipping goods directly to a consumer, significant transportation needs are eliminated both on the part of the vendor (shipping goods to stores) any by the consumer (traveling to stores). Additionally, near universal access to the internet means that a relatively few warehouse locations can compete with a market without having to deal with amounts of real-estate.

Shipping and Fees

The simplified business model provides potentially lower costs or higher profit margins for remote vendors. The 'up front pricing' model attracts customers with low up-front prices reflecting the lower cost of goods to the vendor with less overhead. The vendor would then add the cost of shipping, and any other applicable fees to the order before processing. Since the vendor typically makes the shipping arrangements, it is entirely possible that the cost of shipping passed on to the consumer will not be the same as the cost of shipping borne by the vendor. Some online vendors use this as a source of revenue, further increasing profits or allowing the vendor to advertise even lower up-front prices. (The classic joke here is the "free car" worth $20,000 that has a $30,000 shipping and handling fee) [http://money.cnn.com/2008/06/20/pf/delivery_charges/?postversion=2008062311 Consumers say no to shipping charges - Jun. 23, 2008 ] ]

Free shipping as a method of attracting consumers

Using a hidden fees system can crate price-comparison difficulties in terms of determining a 'to-front-door-price'. This also opens the door to offering the elimination of such fees as a natural method of attracting sales. [ [http://www.earthtimes.org/articles/show/online-couponing-increases-as-consumers-cut-costs,459011.shtml Online Couponing Increases as Consumers Cut Costs ] ] Depending on the shipping-fee model that the vendor uses, several methods may be employed to capitalize on the "free shipping" offer. Some companies offer free shipping on all orders, attracting customers to patronize them in the first place. Other vendors offer free shipping on qualified purchases, typically those purchases over a certain dollar value, encouraging consumers to spend more. Finally, free shipping may be offered as part of a rewards program or as a 'checkout coupon' as an analog to coupons issued by traditional vendors.

See also

Marketing

Internet business

Online shopping

References