Shipping is an integral part of most businesses these days and is a pretty big business itself. FedEx (which serves 220 nations worldwide) delivers about nine million packages each day, and racked up over $44 billion in revenue in 2013. UPS also offers international shipping and brought in over $55 billion in revenue in 2013. Shipping is an essential part of the way retailers do business these days, but shipping practices can also affect customer expectations and loyalty.
Target has started offering free shipping for all orders over $25, which is half of what an order total had to be to qualify for free shipping before the new policy. This is great for customers and encourages brand engagement, but can be burdensome on a retailer since they have to absorb the shipping cost.
Retailers generally try to reduce freight costs by shopping for the best freight rates, controlling transportation costs, and charging for shipping. Additionally, as efforts to improve corporate social responsibility increase, more retailers and businesses are adopting green initiatives — even as fuel prices are getting less expensive.
However, there is something in it for the retailer. According to Forbes’ 2015 Customer Loyalty Engagement Index, free shipping is becoming more and more important for customer loyalty and meeting expectations. Free shipping now accounts for a 15% contribution to brand engagement, which is a third more than last year.
The thing is, customers have come to expect free shipping. Many retailers offer free shipping during the holiday season, and some have offered it all along. Zappos has offered free shipping and free returns from the get-go. Customers know that retailers can do it, so they’ve come to expect it.
Forbes contributor Robert Passikoff says that Target cutting the qualifying order amount for free shipping in half probably isn’t going to cut it. Customers expect free shipping, and there are plenty of memberships at other retailers that give them access to free shipping.
So while most retailers are focusing on controlling transportation costs, there is a silver lining to offering free shipping — better brand engagement.