The pitfalls of free-shipping

Every eCommerce blog in the world will sing paeans in favour of free-shipping. It does make decision-making easier for consumers on one hand, and on the other, it does have a cost. There is no such thing as ‘free’ shipping, first-of-all. It is being paid by the consumer in many cases as the cost gets bundled into the product price, or it is being absorbed as a marketing cost by the seller or the platform.

That said, let’s take a look at how free shipping is being implemented today. A seller from, let’s say Gurgaon, is instructed by marketplaces to list articles on free-shipping, so they work out an average cost of reaching out to potential customers, wherever they might be, and add it to the product price they want - not knowing where the buyer might be. This seller could end up with a consumer who lives next door in Delhi but alas, thanks to free-shipping, the buyer has to pay the average all-India price. The seller could be, for all we know, using a worst-case-price - so the Delhi buyer is either paying the Kanyakumari shipping price, or worse and more likely, not converting.

Try this the next time you travel - do prices on your favourite eCommerce site look different whether you are checking them from Mumbai or Bangalore? Try feeding in your PIN-code, and all you’ll know is if COD is available to you - the price of the article won’t change for you. You know why? Of-course you do. It’s again thanks to the glory of free shipping. eCommerce platforms have so far steered clear of optimising the shipping cost for the seller-buyer PIN-code pair. Why bother optimising something that’s free, right?

Wrong. Like we said before, there’s no such thing as a free lunch - sorry, shipping.

This current business of flying pen-drives and sunglasses across the country is not sustainable. This was fine if Indian eCommerce were on the retail model and thus, free to ship from the nearest location, but today most Indian players, for regulatory purposes at least, are marketplaces. Most eCommerce sites are thus making the buyer select the seller along with the product on a buy-now button. What the buyer wants to select is price and shipping time. There is, therefore, a huge need-gap that needs a solve. In most cases, buyers are getting their products more expensive, and much later than possible.

How it should work is simple. The sellers should be asked to input the price they want for their article, and a logistics solutions provider (LSP) that the eCommerce platform works with should be asked, on-the-fly, to provide the price and delivery-time given the pick-up and delivery PIN-Codes. Sure, if you want things simple for the buyer, by-all-means show a single price that’s the sum of the product and shipping price. What happens as a result is:

• the price shown is more accurate, and fairer to the seller, shipper and buyer
• items closer to be buyer are automatically prioritised (wether sorted by price or time-to-deliver)
• shipping distances are automatically reduced
• prices for the same article are different in different cities, which is how it really is if one were to remove price distortions
• every loss that’s a function of transport time e.g. shrinkage or loss in transit, transit-damages etc. get reduced

End-result is that buyers get their products not just cheaper, but also faster and in a better condition.

We must remember that eCommerce adds value by providing a wider selection and more convenience. Shipping across unnecessary distances, adding costs, delays and damages are not consumer benefits but costs. When the current heavy-discounting regime falls, customers will see that the emperor is not wearing any clothes. That, will be an uncomfortable day, and a heavy price to pay - for free shipping.

Previously published here.