Three ways free shipping isn't free

As consumers have become more and more reliant on online shopping, and less and less willing to drive out to the mall and pick something up themselves, a strange thing has happened: we’ve begun to expect free shipping.

It’s odd, because we certainly don’t expect all those delivery men and delivery women to go unpaid. We understand that it’s going to cost something to get that ice cream maker from the warehouse to our front door. We just expect someone else to foot that bill.

Retailers are well aware of this. Shipping charges are one of the most common reasons why consumers back out of online purchases. How many times have you filled up your virtual shopping cart with goodies, clicked the big CHECK OUT button, and then promptly abandoned your cart as soon as you saw how much shipping was going to cost you?

But again, shipping is never free. Someone has to pay. And guess what? It’s always you.

That’s right. You may not be paying a shipping fee, but online retailers aren’t paying those shipping costs out of their profits. That doesn’t necessarily mean that free shipping is a bad thing, but it’s important to understand how retailers outset the cost of shipping.

Hidden in the purchase price

Probably the easiest way to cover “free” shipping is to bake it into the purchase price. Think about how you shop: when comparing an identical product on two sites, if the prices are similar, but one site has free shipping and the other doesn’t, are you more inclined to go with the free shipping option?

That shipping fee sticks out in our mind. It obscures the price difference. We see the extra charge and our brain automatically say, “Nah, no thanks.”

It’s possible the free shipping option might still be your best option, but don’t discount a product just because there’s a shipping charge. Make sure you do the math before you make your final selection.

Buying extra for a minimum order

A lot of retailers set a minimum purchase amount before free shipping is activated. That’s not a problem, of course, if you were already well on your way to exceeding that minimum.

The slightly tricky part is when you haven’t quite ordered enough to get that sweet, sweet free shipping. Now you’re faced with a choice: pay for shipping, walk away from the order, or add just that one little extra thing to your cart to reach the minimum.

As we’ve already discussed, most people are pre-disposed to say, “No way” to shipping charges. That means it’s a choice between buying a little more or not buying anything at all. And once you’ve gotten to that crucial stage of the buying process, it’s hard to walk away emptyhanded. Now you’re buying something you didn’t really want or need to buy. That’s a good thing for retailers, and significantly less of a good thing for you.

Making an investment in future purchases

And then there’s Amazon Prime. For $99 a year, in addition to a bunch of other content-related features, you get free shipping on a very large selection of items. No minimum purchase required.

By purchasing an Amazon Prime membership, you are doing two very significant things that offset the cost of shipping future Prime purchases. First, you’re giving Amazon money upfront. They don’t have to sell you anything else and they’re already up $99. Second, you are making a commitment to shopping at Amazon.

The second one is more significant than the first. You’ve already spent close to $100 dollars on the membership. In order to get your money’s worth, you’re probably going to make Amazon your default shopping option. That means you’re less likely to shop around, and much more likely to make your purchases through Amazon, even if there is a better alternative available.

That’s not to say that you should avoid services like Amazon Prime, but just remember that no deal is too good to be true. And in the world of online shopping, free stuff is almost always never free.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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