Earlier this week, Total Retail reported that nearly 90 percent of respondents to our recent survey, The Amazon Effect: How Retailers Are Adapting Their Businesses to Better Compete With the Industry Leader, said they “strongly" or “somewhat" agree that Amazon.com has changed consumers’ expectations for order delivery. Today, we look at how retailers view free shipping as a differentiating factor in consumers’ purchase decisions (see the chart below).
The Amazon Effect report analyzes the impact Amazon’s growing influence is having on the retail industry, and what retailers are doing about it as a result, from increasing spending on technology to implementing some of Amazon’s digital innovations on their own websites.
Not surprising, retailers definitely believe that Amazon's free shipping options — primarily its Prime loyalty program, as well as free shipping on all orders of $25 or more for non-Prime members — impact consumers’ purchase decisions. Ninety-one percent of respondents say that shoppers are “significantly less likely” or “somewhat less likely” to buy without free shipping. Amazon Prime members pay a $99 annual fee in exchange for free, two-day shipping with their purchases (no minimum order required).
In order to keep pace with Amazon (and to lesser extent Wal-Mart and Target, which have each rolled out their own free shipping promotions), retailers are being forced in many cases to offer free shipping to customers, and that’s directly impacting their bottom lines — and not in a good way. The question becomes, do you offer free shipping to increase conversions, taking the hit to margin that comes with it, or do you charge for shipping and maintain higher margins, but lose potential customers in the process? While many retailers struggle with that decision, Amazon is capitalizing.
We’ll continue with our coverage of The Amazon Effect report next week, this time looking at how Amazon's fast delivery times are impacting consumers’ purchase decisions. In the meantime, make sure to download the full report here.