Our addiction to free shipping just makes us spend more

  • Most Americans won’t buy anything online unless shipping is free, according to a new study.
  • Free shipping is never really free, and retailers come up with clever ways to cover the cost.
  • Raise prices or force us to buy more – retailers cover shipping one way or another, experts say.

Americans’ addiction to free shipping is getting worse. And while it might seem like a bargain, transportation experts say it probably ends up being the exact opposite.

According to new data from shipping technology company Shippo, 62% of Americans refuse to buy something online without free shipping. In 2020, that number was 40% — evidence that our addiction to free shipping is only intensifying.

“It’s a conundrum,” said Krish Iyer, vice president of strategic partnerships at Auctane, which owns ShipStation and Stamps.com. “Having some sort of free shipping option is now a permanent expectation.”

But someone has to pay for shipping even when it seems free. And at the end of the day, it’s probably you.

Free shipping can delay packages

Retailers negotiate prices with package carriers like UPS and FedEx to try to make shipping costs easier to absorb while still making a profit, but in recent years, shipping prices have risen faster and more frequently.

“The cost has increased exponentially – with new surcharges being added, fee increases occurring more frequently than once a year, and new rules in terms of weight and dimension limits,” Iyer said. In the Shippo survey, 41% of online sellers said shipping charges were their number one challenge.

In some cases, retailers are choosing to ship slower to save money rather than charging for shipping, Nate Skiver, CEO of LPF Spend Management, which used to manage shipping for Gap, tells Insider.

That’s why the slower shipping service of carriers like DHL and UPS, where most packages are passed on to the post office for delivery, is booming at the same time that Amazon boasts of “in hours” deliveries.

“The option is still there, the customer just has to wait,” Skiver said.

Does free shipping make you spend more?

Retailers have different priorities when it comes to influencing consumer behavior. Some want large order sizes with lots of items. Some want a lot of small orders. Some want to nudge certain items that bring in more profit over others that bring in less. And because they know that free shipping is a prerequisite for shoppers, they also know that they can change our behavior with minimal purchase requirements.

Psychologists call this “loss aversion” – when it becomes preferable to “earn” free shipping by adding more items to the cart than to “lose” money on shipping.

Nearly half of consumers in Shippo’s survey said they are willing to meet a minimum purchase amount to get free shipping. The minimum will likely be set by retailers based on the average price of the product they sell and the number of items that would help justify shipping, Iyer explained.

Retailers have also started raising product prices with shipping costs in mind, he said.

Also, since consumers aren’t willing to pay for shipping, retailers are constantly trying to figure out what extras they’ll pay for. An exact delivery date might be one thing retailers start trying, according to Iyer.

“Many consumers are now as interested in date- and time-specific delivery as they are in free shipping,” he said. Some retailers are now charging consumers for delivery by a specific date, rather than a way that might say “between 3 to 7 days”.

Good news for them: Americans are also addicted to package tracking, so a set delivery day might get a dopamine hit.

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