Why Free Shipping is Bad for You (Part 1)

May 13, 2014 10:32:00 AM

As a company that ships products around the country, in many cases to areas that have local competition for the same product, Good Start Packaging has struggled for years with how to price our products (including delivery costs) in a way that is both fair to everyone and as competitive as possible with every form of competition there is out there. 

By fair, we mean we don’t want to pick a high price on a product so that we can afford free shipping to a customer in Fairbanks, Alaska if it means this is subsidized by a customer who is just down the street. 

It costs less to serve the customer down the street so he should pay less as a general rule. Yet millions of people pay inflated costs for online products in order to subsidize free shipping programs to consumers who live farther from a merchant.

Before I explain how offering free shipping is feeding a monster that will eventually eat all of us, here are two facts you should know:

  1. It costs a little more to ship a lightweight box (e.g. an iPhone) across the country than down the street.  OK, that’s obvious.  However, it costs WAY more to ship a heavy box (e.g. a box of compostable coffee cups) across the country than to ship that same heavy box down the street.   Most of our products ship in heavy boxes.  Unlike iPhones, our products have pretty modest profit margins so shipping costs can be a business killer if we don’t accurately estimate shipping costs for every product to every state.
  2. I’m a hypocrite when it comes to hating free shipping.  For over 14 years, I’ve been a faithful customer of one of the most successful eCommerce companies in the world, Amazon. I’ve remained a customer in large part because of the convenience and speed with which I can get everything from shaving cream to DVD players.   But I’m also a customer because I LOVE the free shipping Amazon offers.  I feel like I’m getting my cake and eating it too because I get low prices AND don’t have to go to a boring retail store. 

Even though most eCommerce companies now offer free shipping, I’m going to pick on Amazon in this blog because they were the pioneers that addicted consumers to only want to buy from merchants that offer “free” shipping.

The Real Secret of Amazon that Should Scare You

Now that I also own an eCommerce company, Amazon’s success is starting to scare me.  You might assume that statement could only come from a bitter, old-school merchant who is too lazy or incompetent to compete or that doesn’t believe that technology and increased competition benefits consumers. That is true of many businesses, but not Good Start Packaging.  So, what’s my problem with Amazon? 

Amazon’s Amazing Unstoppable Growth

Amazon continues to grow its revenue at an unbelievable pace, achieving $74 billion in sales in 2013.  Yet their profits are anemic, at just 0.3% of revenue.   But their CEO will readily admit, that it’s not about profits, at least not yet.  They have a longer-term strategy to gobble up market share at almost any cost, something that’s a lot easier to do when you’ve got billions of dollars of cash on hand from an IPO.

Check back for Part 2 of this post - where we reveal that there is no such thing as free shipping.  I will also let you in on a secret about what I'm doing with my once-loved Amazon Prime account. 

Ken Jacobus

Written by Ken Jacobus

Ken Jacobus is CEO and founder of Good Start Packaging. He works with restaurants and other organizations around the U.S. to help them find the best sustainable alternatives to traditional plastic take out food containers. When not busy trying to eliminate landfills and plastic, he hikes, bikes, skis, reads, and plays with his family around his home in southern New Hampshire.

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