In part 1 of Why Shipping is Bad for You, I shared two facts that you should know about free shipping. Now we get into the details on why free shipping might be bad for you and your business.
There is no such thing as Free Shipping
Merchants like Amazon that offer free shipping bury the cost of it in the products they sell. They often offer free shipping for larger orders as a way of enticing you to do more business with them even if some of their products are not competitive with other merchants.
Amazon in many parts of the country loses money on orders in order to offer free shipping everywhere. They’re doing this to grab market share so they can command even more leverage with their shipping suppliers, further lowering their costs while they continue to build local warehouses to fulfil orders, which also lowers their costs. At the same time, this strategy of selling so many products at or close to their cost is putting many competing businesses out of business. If this happens enough, Amazon will have the lowest costs of any supplier and no competition. Then they can charge virtually whatever price they want. Will that be good for consumers?
But that’s not all Amazon is doing that is scary. We sell on Amazon as a third party merchant because it adds some additional revenue, presumably from loyal Amazon customers who might not find us on the internet otherwise. Amazon has thousands of merchants who pay them a commission to use the Amazon storefront to sell products.
But doing this gives Amazon valuable market data that no one else has. Amazon can use this market data for example, to determine what products to sell themselves once a market has been established for them. They can figure out where in the country certain products sell best so they can optimize their warehouse inventory before they ever have to invest in any. Not only do they not pay for any of this valuable data on millions of products, they actually get paid a commission of up to 15% on every item their merchants sell. You can start to see the true power and leverage Amazon can build for itself that no other business can do.
Stop the Free Shipping Insanity
E-Commerce bloggers and industry experts say free shipping is a must because consumers want it. Well, that’s because many companies are giving it to them. This kind of circular logic is an epidemic these days. It’s the same thing with coupons and sales- the logic is that everyone’s doing it so we all have to do it, even though coupons and sales are short term revenue gimmicks that ultimately have costs.
So, after all these years, I’m canceling my Amazon Prime membership and will start ordering less and less products from them, in favor of local companies or smaller e-commerce companies that are working hard to create value for me in other ways. It’s a small gesture that Amazon may never notice. But every vote counts and I’ll sleep better.
What do you think? If every online merchant just charged a fair price for their product and then charged the real price for shipping, would it change your buying behavior?