Web tip – how Amazon’s free shipping policy impacts your business

Amazon Offers Free Shipping on Small and Inexpensive itemsYou’re in competition with Amazon if you sell online. Even if Amazon doesn’t carry your products or product category directly (unlikely), the superior user experience Amazon offers has dramatically altered consumers’ expectations of online shopping.

Thanks to Amazon, consumers expect products to be inexpensive or heavily discounted. They expect free immediate shipping (first a few days, then overnight, and now just a few hours). They want access to customer reviews, and product recommendations, and to comparison shop from similar brands, before purchasing.

These raised expectations make it difficult for businesses without Amazon’s budget (and businesses with Amazon’s budget) to keep up. Amazon’s recent announcement – free shipping on small and inexpensive items – further raises these high stakes.

Amazon announces free shipping on small items

Amazon launched free shipping for a range of products last week, for both Prime and non-Prime members. Coined the “small and light program,” consumers can select free delivery on thousands of items selling for under $10 and weighing less than 8 oz. (Previously free shipping was only offered for shopping carts exceeding $35 or for Amazon Prime members.) Consumers’ “small and light” items will arrive on their doorstep within four to eight days, but this program is only for select items, not all items meeting the “approximately the size of a potato” criteria.

This change is expected to extend Amazon as the go-to shopping site for smaller items, like toothpaste, that consumers were less likely to buy online. It isn’t completely rolled out, so time will tell the extent of items included.

Amazon’s free shipping pressures retailers

First, don’t panic. Amazon’s update won’t release the shipping floodgates. Free shipping is not a viable long term offering for most businesses. If the customer isn’t paying shipping, the company is, and it isn’t cheap. Shipping costs are highly variable and depend on the weight and volume of the items. For some smaller items, shipping costs might exceed the company’s profit from the sale.

Companies struggling to compete with Amazon must find a balance between offering free shipping and maintaining their profit margins. Amazon will continue to keep commerce on its toes, but we’ve got a few tactics to maintain this balance.

How to keep pace with free shipping

1.  Incentivize customers with free shipping promotions or discounted shipping as part of your normal promotions calendar. You can extend this offer on rare occasions, once a month, or on a specific day of the week, like Free Shipping Fridays. This approach gets you into the free shipping game without setting an expectation that you cannot reasonably fulfill.

2.  Give free shipping to your loyal customers. Growing your loyalty program is a surefire way to nurture repeat sales. Offering special promotions, like free shipping, will entice customers to join your program, giving you the opportunity to engage them on a more regular basis.

3.  Offer free shipping on inventory you want to clear. Stale inventory sitting on shelves is expensive. For companies with seasonal or trendy products, clearing inventory is especially necessary to make space for newer, on-trend products. Offer free shipping on excess inventory to incentivize shoppers to purchase and help you clear your shelves for new product. (For inventory close-out ideas, see how our marketing campaign moved excess inventory and minimized profit loss, producing an 808% ROI in the first month.)

4.  Instead of offering free shipping, you can offer to pay customers’ return shipping. With this approach, shoppers might purchase additional items by limiting their risk of returning product they don’t like. Monitor the number of returns carefully to ensure you’re staying within your margins.

Get creative to compete with Amazon

As Amazon innovates, consumers’ expectations will continue to rise. E-commerce companies feeling pressured to compete can adopt some of Amazon’s tactics on a smaller scale, without fully implementing a policy that they cannot afford to maintain. Nurturing current client relationships and delivering a personal touch that makes shoppers feel special and appreciated will give e-commerce companies the upper hand.