Tuesday, March 29, 2011

LLBean Offers Permanent Free Shipping

I recently received an email from LLBean announcing the end of shipping charges. Permanently. No minimum order value.

Of course, the first thing which occurred to me was- will their prices now build in shipping costs? Or will they attempt to absorb them in margins? Or hope for growth to offset the shipping? From the outside, without examining a lot of prices before and after the offer, it's difficult to tell. However, I'm guessing it's perhaps modest relative price movements that will be stickier or higher than otherwise, combined with some margin loss.

That said, the change is an interesting commentary on at least two phenomena.

One, for competitive posturing, offering 'free' shipping may be a powerful inducement to buy. I don't follow other online retailers closely, but it's quite possible that economic pressures on the middle class are driving online retailing, generally, to absorb shipping. In either case, competitively, it certainly removes a potential negative for Bean.

Two, there's the consumer behavior aspect. Perhaps Bean is seeking to entice customers to buy more frequently, albeit in smaller quantities. Perhaps changing more purchases from planned to impulse? I know I have, in the past, typically tended to combine purchases in order to save on shipping. But I've bought on impulse more frequently when I've received notices of free shipping periods. Perhaps Bean has concluded, from comparative research on its credit card-holders, who receive free shipping, and others, controlled for income, etc., that free shipping is worth the investment in subsequent revenues.

You have to wonder how Bean will manage the extremes of this cost absorption. How long can they afford customers buying some low-priced miscellaneous items for $9 or $10 when the real shipping costs might equal the product price? I spoke with a friend who, while at BCG, did some consulting for the USPS. She informed me that when Bean uses UPS, it doesn't necessarily mean you'll receive your item from Big Brown. Depending upon where you live, UPS will simply bar code your parcel for USPS shipping and drop it in a box in that mailing zone. Typically that happens in rural areas where the costs of actually sending a UPS truck are prohibitive. Maybe that's how the smaller, cheaper items will be delivered.

Still, there's real cost involved in those.

Then again, giving credit to Bean for being pretty sharp, maybe their research shows that, even with free shipping, most people simply don't deluge them with orders for $7 items.

With oil prices surging again, and gasoline prices continuing to bounce between $3.50 and $4 on average, nationally, you have to reason that Bean knows some very revealing information about its customers that would result in offering free shipping as a move to increase profits.

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