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The Free shipping Myth

The Free shipping myth

We do not include shipping costs in our prices and then say free shipping.   Our local customers shop online and pick up at our warehouse in southern CA for free.   We also offer low cost local Delivery in Southern ,CA so the automatically included costs of those other sites would make it cost too much for local customers.  So if we included shipping costs in our prices that vary greatly by state then we would be over charging and the customer would expect a more expensive item thinking shipping is actually free.

  So, how do retailers offer free shipping on these larger items. There are several ways, but here are the most common methods:

    They hide the actually cost of shipping in the price of the item. This is an especially effective tactic on expensive items. For example, let's say that a big screen TV is priced at $3000. The retailer may pay something like $2500 for it. If the big box retailer is a big shipper, they may be able to negotiate a shipping rate of $150. So they offer "free" shipping to spur interest. In the end the retailer is still making $350 and has probably charged a higher retail price to cover those charges.

    Another particularly effective method is the use of "standard" shipping. Let's take the example of the big screen TV again. The retailer may offer this TV for $2700 with a cost of $2550. Once again the actual cost of shipping is $150. Of course if they offer free shipping, they won't make any money. So how can they do it? They offer free "standard" shipping. The customer is told that the order may take 2 to 4 weeks for delivery, but if they wish to receive it within the next few days they can use an expedited shipping method and the cost will be $200. Of course many customers will be anxious to get that new TV so will go ahead and pay the extra shipping charge. The retailer actually makes an extra $50 on the transaction and this helps defray the costs of the customers that accept the free method. It's just a matter of averages.

This same principles apply to low cost shipping. The lesson here is that shipping is always charged and you may not see it. Once again, you may think, "big deal, at least I'm saving money one way or another." The problem with this mindset is that the true cost of the product is hidden. Let me give one more example to illustrate my point, this time from an industry that I'm more than familiar with: furniture.

Furniture Co. offers a wing chair for $450 with free shipping. The chair price is a steal in itself, but free shipping takes the cake. Now lets say that shipping the chair costs $200, which is not an unreasonable amount. That would put the cost at $250. Now think about this for a second. A wing chair for $250. Is this a rational price? Think about the cost of manufacturing. In that price is the fabric, frame, springs, cushions, finishing, upholstery, sewing and all the other parts and labor in addition to the profit to be made. Can you really make a quality chair for this price? One other thing to consider is that if this is sold retail (not direct from the manufacturer) there is a 30% - 50% markup.

We strongly advocate to showing customers the true price of the item they purchase. That is one reason why AMB Furniture and Design lists the shipping price separately from the price of the item. We want you to understand that we are not hiding anything. Along those same lines we don't treat shipping as a profit center. Our goal is to break even on shipping. There are times that we lose a couple of dollars on shipping, but we never overcharge. We're in the furniture business not the freight business.  

We also offer a low cost local delivery in Southern CA that can possibly sav you hundreds of dollars when purchasing multiple items at once as we charge one fee for your whole shipment locally.  We also have a free local pick up option to save on any of the Delivery or Shipping fees otherwise included in your so called "free shipping" item online.

    Other ways they offer "Free shipping" they build the cost of shipping into the prices, when the cost of the price has been raised to cover the cost of the shipping the shipping is then ‘free’. You actually don’t save any money this way, it may even cost you more because now that the product cost includes the shipping you may end up paying tax on the price including shipping. Buy a watch for $70 with free shipping is worst than buying a watch for $40 and paying $10 to ship it. You will be paying taxes on $70 purchase Vs $40.00

    Cut the cost of the product, packaging and the shipping cost by using a 2 day service rather than an overnight one. Cheaper ingredients and shipping so that it arrives later gives the product a extremely short shelf life and no ‘cushion’  in case of carrier or weather delays.

    Making a minimum purchase or limited item free shipping, the ads say ‘free shipping’ but it’s on limited items, those items may only be shipping by the less expensive methods or already have the cost of the shipping built in. Amazon recently increased the minimum to $35 purchase to qualify for free ground shipping.