Some people swear by online shopping. But what about free shipping?
You might have Amazon Prime and expect 2-day free shipping on every purchase. Or you might have added something extra to your cart to meet the free shipping threshold.
But think for a second – when you search an online retailer, are you prioritizing free shipping? Are you trading off on unique items in favour of free shipping, or spending more for the illusion of saving money?
What is the real cost of free shipping?
Everybody loves free shipping
We all love free shipping. But should we?
It feels like we’re saving money. It feels like we’re getting something for nothing. But we all know there’s no such thing as a free lunch, so why do we jump at free shipping so…freely?
Well for one thing, it has made no-contact shopping feel easier.
Since COVID-19 reared its ugly head, we’ve all been looking for safer ways to buy the things we want and need – from groceries to garden hoses. Getting these items during a time of financial strain can be difficult, and the lure of free shipping gives us a feeling that we’re saving money.
In an article from The Atlantic, the director of Yale’s Center for Customer Insights, Ravi Dhar, says that our reaction to free shipping isn’t the same as how we see the cost-benefit relationship. “A 20 percent discount, which would add up to the same $5 or $8 that shipping costs – that’s not as effective as giving free shipping,” he states.
But the hard truth is that there is no such thing as free shipping. The costs are vast and many:
- A loss of diversity in the marketplace,
- buying more to reach the free shipping threshold,
- the increased cost of goods to cover the shipping cost, or
- even 2-day shipping’s impact on the environment because of increased emissions…
…these are the results of what we think of as “free.”
What about that Amazon Prime membership? You paid for it to get “free shipping.” But if you paid something, was that shipping really free?
Not really. Not unless you get a lot of packages shipped individually, to make up for the upfront membership cost – and that isn’t great for the environment.
Economic impact of free shipping
The allure of getting a package dropped at our door for free tends to create blinders and we don’t consider the various associated economic costs.
In a podcast for CBC, Tracy Fuller points out that in a year when Covid has disrupted so much, consumers need giants like Amazon to get the lowest prices because they can’t afford to pay more for small businesses.
But the real costs are vast and murky, so much so that we don’t often see them. Free shipping affects small businesses, your overall spending, the diversity of products available, and the environment.
“Free” shipping is often included in the price
There are a bunch of ways to make it possible to offer free shipping. If you’re Amazon, then you plan to sell enough do-dads to make up for this cost, even though it eats into your profits. But what if you aren’t Amazon?
One way to afford free shipping is to hide it in the price of the individual items. Some businesses will mark up items to make it seem like shipping is free, but the cost is really just added to the price of the item. And people are often willing to pay a bit more, just to avoid shipping costs.
In fact, according to the same article from The Atlantic, shipping charges were determined to be the most common reason that shoppers abandoned their online carts in 2018.
I don’t know about you, but I’ve been guilty of adding another book, shirt, or a little gift for my wife to my online cart to reach the minimum purchase for free delivery. And I’m not alone – many people resent having to pay for shipping so much that they’ll easily add more expensive items or smaller, single-use items just to meet that free-delivery minimum.
The Amazon Prime effect
We’ve all been effectively trained to expect free shipping thanks to huge retailers like Amazon, says Lisa Kramer, a Behavioural Economist at U of T, in the CBC podcast above. Now, free isn’t good enough – it also has to be as fast as possible.
Those of us with an Amazon Prime subscription have become tied to the company simply because we’re already paying for the service. So we go to Amazon instead of the local shop because of COVID, or because we got bored watching Netflix and realized we need new deodorant.
And we look for the 2-day free shipping option, because we’re already paying for it.
Basically, as stated earlier, the free shipping model is a loss leader. But, it’s worth offering from a business perspective for one very important reason: free shipping is appealing for consumers.
It’s because we irrationally hate to pay for certain services, even valuable services. And because we hate to pay for shipping, we avoid paying for it at all costs.
This irrational hatred, though, may be unexpectedly hurting our wallets, the marketplace, and the environment.
Free shipping hurts small businesses
One of the hidden costs includes the loss of smaller businesses. Kramer says that we’ve sacrificed the diversity of vendors we once enjoyed – our local shops – in order to enjoy the convenience of online shopping and free shipping.
Let’s look at Etsy as an example. In order to keep up with large sellers like Amazon, Etsy encouraged its sellers to offer free shipping and prioritized those listings on its site. To the consumer, this seems like a great idea: you get to shop for original, one-of-a-kind pieces and support small businesses while still getting what you love – and not dropping an extra penny to have it delivered.
From a seller’s perspective, though, it’s not the best of plans.
For example, The Atlantic mentions an Etsy seller named Ann Miceli, who assembled nearly 30,000 pairs of earrings and feather hair extensions at home since 2011, and sold them through her Etsy shop. Once the site began prioritizing sellers with free shipping in 2019, though, sellers like Miceli were removed from their spots on the first page of search results. Simply because they were still charging a few dollars for shipping.
By August of that same year, Miceli’s revenue was down 40%. And she blames this loss completely on the free shipping marketing change.
The free shipping trend has affected larger sellers too, though. In fact, it was independent booksellers who first felt this impact as Amazon’s first business model centred around book sales. These booksellers took massive losses upfront simply to secure their place in the market.
And they’re still taking losses. Retailers who can afford to offer the option of free shipping, even the large ones, have realized that it’s much more expensive to deliver to their customers’ front doors. This means the cost has either been added to the prices of individual items or is funded by investors.
Jerry Storch, CEO of the Hudson’s Bay Company, is quoted as saying that even for those retailers who can afford it, free shipping is becoming a loss leader.
What this really means is that huge companies are willing to lose money right now, in order to push out the competition.
And who is the competition? Small business.
Who is it really? People like Ann Miceli.
Environmental impact of free shipping
When we think of free shipping, we don’t often consider the broader impact on the environment. We don’t think of planes, trains, or automobiles.
But when you really consider it, the time and mode of transit must make a difference.
Causes smaller shipping – which ups carbon emissions
In the last few years, Amazon has begun offering same-day shipping in the U.S. and 2-day shipping in Canada.
What this means, logistically, is that Amazon has hired local people to drive your waffle maker to you. It means that postal trucks are driving extra routes, using more fuel, and creating more carbon emissions. It’s a nice perk for consumers, but not so great for the environment.
Think about it: if we move toward faster shipping, more shipments need to be done. That’s more planes in the air, more trucks and cars on the road – all more often.
And this makes each delivery less efficient.
The problem is only growing. In order to keep up with Amazon, other retailers are jumping on the same-day shipping train in order to not lose the sales.
For instance, Target now has same-day delivery in the U.S. And Walmart now offers same-day delivery in Canada (select locations) for grocery items through Instacart, and free next-day delivery in the U.S.
More and more retailers will need to do so if they want to keep up.
So what can be done?
A University of Washington study in 2012 determined that grocery delivery can cut between 80% and 90% of carbon emissions, as compared to consumers going to pick up their own items.
What? A delivery driver is better for the environment than going to the store yourself? That’s an amusing thought. Maybe the old days when the milkman came to your door are something we should aspire to. But it still won’t help me get my TV delivered.
So how can we scale up this model? We can combine shipments and increase the number of stops each vehicle makes.
In the University of Washington study, Patrick Browne, Director of Global Sustainability at UPS says, “I don’t think the average consumer understands the environmental impact of having something tomorrow vs. two days from now. The more time you give me, the more efficient I can be.”
So, it’s simple. Give shipping more time. Wait, make a list, order more, and allow your shipping to take a little longer. That way your order can be bundled with other people’s and create less of an impact.
Free shipping makes over-consumption easy
Because we have access to shopping apps on our phones and every website has our data stored for easy checkout, the ability to over-consume is far too easy and at an all-time high.
Imagine your average night at home: you’re scrolling through social media and you see an ad. You click, then you see the free shipping offer, so you add a couple more items to the cart, and you buy.
Or, you’re watching TV and you realize that you need to buy a present for a friend. This isn’t a problem because you have the Amazon app. Click. And while you’re at it, why not add a couple more little things for yourself.
Why is it so easy to fork over your hard-earned dough online? It all relates to the economic principle known as “pain of paying,” a psychological discomfort that keeps people from completing purchases.
Online, that pain is nearly nonexistent. Your credit card is linked to your shopping app and your fingerprint. It just takes a little thumb press. Paid. Two days later, you have your new shampoo, slippers, or Xbox. You don’t feel a thing.
So what can be done?
So how can we stop spending? Do we need to feel the pain of paying? No pain, no gain in the bank account, right?
When we use cash it “hurts” more than credit or debit, because we have to physically fork over the cash. It has to be taken out of our wallet and relinquished, and this hurts a lot more than tapping a card or clicking a button on a computer.
The ease of online shopping avoids the pain of paying and allows us to spend and get those feel-good endorphins, all without the pain of watching the money leave our wallet.
The solution, then, is to make it harder to buy things. Increase the pain of paying.
Ditch the apps on your phone. Or stop storing your payment info in the app or on the websites.
Still love that free shipping feeling? Here’s our list of Canadian retailers that offer free shipping.
3 tips for eco-friendly shopping
If you want to shop in an economically and ecologically friendly way, here are some tips to help out.
1. Shop small businesses online
In our current economic climate, small businesses need support. Many of your local businesses have online presences too, and offer delivery. If you want to help the environment with eco-friendly shopping, give small businesses a chance.
You’ll benefit from more unique products and experiences. You’ll boost your local economy and allow for more local shipping and delivery options.
2. Don’t choose the fastest shipping option
When you choose the fastest option, it means more planes in the air, more shipping trucks, postal carriers en route, and more carbon emissions.
To be a more eco-friendly shopper, you might think that the best way would be to physically go out to the stores. But that might not be the case. If you have to drive there and make several stops, you may not be helping the environment at all.
A simple solution is to still order online but choose the slower shipping option. The longer the item takes to ship, the more eco-friendly it is, because your items will be combined with a larger number of packages. Then they’ll be shipped all at once.
3. Bring back the pain of paying
We need to find ways to make ourselves aware of how much we’re spending. We can do this by removing all our saved payment information, forcing us to re-enter it every time we need to buy something online.
Another way is by using a prepaid credit card for all online shopping.
How does it work?
You have to load the money onto the credit card. You can’t buy something if there isn’t money preloaded because there’s no actual credit to be had.
This means you have to part with the money from your bank account once. Then you’ll need to check the balance on the card before you purchase – a second chance to think about how much you’re spending. Then you’ll need to click again to confirm the order and shipping.
All of these added barriers will help to increase the pain of paying, creating a response similar to paying with cash, where you have to watch the money physically leave your hand.
What about you?
Turns out the more convenient the shipping, the worse it is for the economy and the environment.
What will you do to help the free shipping issue? Have any tips to share?
Please let us know in the comments below.
FAQ
Is free shipping really free?
Technically, no, free shipping isn’t free. The shipping costs can be hidden in the increased price of the item, and shoppers are often persuaded to buy more to meet minimum purchase thresholds – spending more when you don’t need to. It eliminates diversity in the market and hurts small businesses. And even with services like Amazon Prime, the shipping isn’t free since you’re paying a subscription fee.
How can I shop in an eco-friendly manner?
To be a more eco-friendly shopper, try shopping locally, get items shipped from local stores, or choose a slower shipping option that allows companies to send packages in larger quantities and reduce the number of shipments needed. This will decrease the number of trips and the amount of carbon emissions created.
What can I do to help alleviate the true cost of free shipping?
To help with these costs, you can buy from small businesses. You can also choose not to use free shipping options and try paying with a card that has carbon offsets. The MogoCard is a good option as it plants a tree for every purchase made.
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