But First Let Me Get Free Shipping

You can blame the e-commerce giant Amazon for the pain that some small businesses are feeling as a result of Amazon’s decision to offer standard free shipping on most orders. From a consumer standpoint many people have no problem with their purchases being shipped for free. As a business, watching my margins shrink and absorbing costs that were notoriously passed on to the consumer is quite a challenge. The name of the game is scale. Economies of scale explains how costs decrease as volume increases. If you fill up one truck with 10 boxes due west to California, the total cost of fuel, driver, and truck maintenance will be spread out over the 10 boxes. If that same truck was capable of holding 100 boxes, the shipping cost for each item would be decreased by a factor of 10. This is how Amazon is able to negotiate such low rates with logistics companies.

Perceived Value

The idea that we place a price on things that are not priced can be beneficial in e-commerce. Some examples are baseball cards, rock star guitar picks, and Disney Trading Pins. What these three things have in common is scarcity, emotional attachment, and low manufacturing costs. However, the buyer of these items does not care about the cost. The buyer cares about the value. A Derek Jeter rookie card will never be printed again. There are only so many guitar picks used by James Hetfield from Metallica. Disney and Apple once collaborated to produce Mickey’s Mac Club pins in 1990. I think you get the point. Theses items have big margins and can be used to offset shipping costs.

Shipping Pricing

So, you want to compete with Amazon’s free shipping as an e-commerce company. Find something that you sell with high perceived value and low cost. At the time of checkout you give the customer an option to choose free shipping slow, free shipping fast with purchase of this exclusive high margin high perceived value item of your choice, or paid shipping fast. Not all of your customers will accept the offer, but the offer acceptors will offset some of the free shipping costs. Give this a try and examine the results.

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