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Is Free Shipping Costing You?

Free shipping sounds good--and it's certainly been good to retailers such as Amazon.com. But is it really free? Or do ecommerce sites that offer free shipping make up for it by charging higher prices for their products? Researchers Mehmet Guus, Shanling Li, Wonseok Oh, and Saibal Ray, all from McGill University, set out to answer these questions by writing a proprietary software that would crawl bizrate.com, a Web site that compares prices online. They found that free shipping might not be exactly free, but it's still a pretty good deal.

The researchers concentrated on the prices of two items: digital cameras and printers. They figured those would provide good comparisons, since the cameras are lightweight and small, and therefore cheap to ship, and the printers are big and heavy and therefore pricey to ship. They then collected the prices for 12 cameras and 12 printers for 121 days, generating a data set of more than 84,000 prices. Of the retailers, 71% operated solely online while 29% also had a brick-and-mortar presence.

Here's why free shipping is a pretty good deal:

  • Free shippers have lower total prices. The total price of a digital camera charged by merchants that charge for shipping and handling was 3.4% higher than the price charged by free shippers. In the case of printers, the paid shippers charged 4.5% more.
  • For printers, shipping and handling fees ranged from 3.5% to 10.1% of the price.
  • For cameras, shipping and handling fees ranged from 1.6% to 4.7% of the total price.
But free shippers might still drive you nuts, because they tend to change their prices more frequently than the paid shippers do.
  • Free shippers changed prices every 11.5 days
  • Paid shippers changed their prices every 16.7 days.
The authors note that overall, the free shippers were bigger companies than those that charged for shipping and handling. And it's well-known that bigger companies change their prices more frequently than small ones, because big firms are more responsive to changes in demand and cost. That could be why prices fluctuated more at the free shippers.

For retailers, the authors say offering free shipping makes sense if:

  • the retailer is big enough that it can negotiate low product and shipping/handling costs with its suppliers
  • the retailer expects shipping prices or costs to fluctuate rapidly
  • its competitors offer free shipping
How important are shipping costs to you? Do you think sites offering free shipping really offer a good deal?

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Photo courtesy flickr user Mountain/Ash.

Kimberly Weisul is a freelance writer and editor. Follow her at www.twitter.com/weisul.

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