E-tailers lure customers with free shipping

While many well-known e-commerce companies charge for shipping, lesser-known sites that sell everything from textbooks to furniture are increasingly absorbing shipping costs as a way to lure bargain-hungry consumers.

Analysts say the strategy could be risky for some e-tailers. Not only does free shipping set customer expectations high from the start, it's also expensive.

"Free shipping is one of most appealing ways to attract new buyers to a site," said Melissa Bane, an e-commerce analyst at market research firm Yankee Group. "But is it a sustainable way to attract new shoppers? That remains to be seen."

According to Yankee Group, some 66 percent of online shoppers consider shipping costs an obstacle to buying online. But Bane, who calls shipping charges the "dirty little secret of the Internet," said e-tailers are trapped. While it may attract customers in the short term, those same customers could look elsewhere should the e-tailer later try to charge for shipping.

For now, many e-tailers are convinced that the benefits of offering free shipping far outweigh the cost.

Free shipping for life
Beauty and health store More.com takes the free-shipping model to an extreme. The company relaunched the site, formerly known as Greentree, last month with a promise of free shipping "for life" to customers who sign up as charter members during a "Forever More" promotion.

That promotion also applies to More.com's prices--meaning a customer buying an item, such as shampoo at $1.99, is locked into that purchase price for life, as long as the buyer purchases that item at least once a year.

"Our greatest competition is [customer] inertia," said More.com's marketing director Tim Hogan. "This is a great way to attract and maintain customers long term."

Hogan said More.com's recent partnership with pharmaceutical company Bergen Brunswig makes the free-shipping offer feasible. San Francisco-based More.com uses Bergen's distribution center located in Kentucky, which saves on inventory and management costs, he said.

"We have a very efficient customer acquisition cost," Hogan said.

Meanwhile, college textbook store Bigwords.com, which competes for student dollars with traditional campus bookstores, started offering free shipping on orders of $35 or more in January.

"If there's any reason why students wouldn't shop online, it's shipping charges," said Bigwords' chief executive Matt Johnson. "If we can remove that from the equation, we can acquire customers faster."

While almost all of Bigwords.com's customers qualify for free shipping, because of the high price of textbooks, about half choose to pay for faster delivery using United Parcel Service or Federal Express, Johnson said. Compared with other products, books are relatively inexpensive to ship, Johnson added, arguing that covering the cost of shipping is a small price to pay to bring customers to the site.

Bigwords.com will evaluate the policy after the current back-to-school buying period, Johnson said.

Temporary benefit becomes permanent
Also weighing the idea of continuing a free-shipping policy after a trial period was luggage and bag seller eBags, which started its promotional offer in June. Company cofounder Peter Cobb said the promotion went so well that eBags decided to make free shipping a permanent benefit.

"People imagined that shipping a piece of luggage could get expensive," Cobb said. "We said, fine, we will wipe that fear away and take care of the shipping."

Cobb said high-profit margins on luggage will allow the company to eventually turn a profit even if it has to absorb shipping costs. Unlike books or music, which have have margins in the 12 percent to 17 percent range, luggage has gross margins of up to 40 percent, Cobb said.

Like luggage, furniture also is a high-margin business. Furniture.com has been offering free shipping since the company began selling on the Web more than two years ago. Furniture.com ships its products through moving companies and also helps set up the furniture in the customer's house, at no additional cost.

Furniture.com spokesman Don Goncalves said the company offered free shipping as a test. He declined to say how much free shipping costs the privately held company, but did say there's no immediate plan to change the policy.

"It's part of what we view as what would be the complete customer experience," he said.