Every online shopper has probably experienced it: You have added all the items you need to your cart, and a box pops up that says, "You are only $11 away from free shipping!"
There are many ways to get your stuff shipped gratis. Some retailers offer it to shoppers who spend a certain amount of money. Other stores, such as Amazon, give it to users in exchange for an annual subscription fee. And members of cash-back site FreeShipping.com can claim rebates to reimburse their shipping costs.
But consumers' demand for free shipping comes with unintended consequences.
An overwhelming 88 percent of consumers said free shipping would make them more willing to shop online, according to the 2016 Walker Sands Future of Retail report. Consumers coveted this perk more than streamlined returns or same-day shipping.
David Bell, marketing professor at the Wharton School, said that Amazon Prime is driving the perception that shipping should be free. Prime provides members free two-day and even free same-day shipping on a variety of items as part of its $99 annual fee. This encourages shoppers to place smaller orders, and more of them, rather than waiting until they want enough items to qualify for free shipping based on the amount spent.
Retailers can attract more frequent orders with low free shipping minimums, or bigger orders with higher free shipping minimums.
Retailers that already have high margins — that is, their profit from the sale of the item comfortably exceeds the cost of producing or procuring it — can generally absorb the cost of shipping, according to consumer psychologist Kit Yarrow, a professor at Golden Gate University. But other stores might raise their prices in order to give online shoppers free shipping.
"Low-margin retailers are saying, 'Somehow or another we've got to get these costs back into the hands of consumers.' Otherwise they won't stay in business," Yarrow says.
