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Free delivery is a kind of marketing strategy, which is mainly used by online suppliers and mail order catalogue to attract customers.
Compared with traditional physical stores, Internet providers benefit from a simplified sales model. By storing the goods in the warehouse remotely and transporting them directly to the consumers, a large amount of transportation demand between the seller (transporting the goods to the store) and the consumers (traveling to the store) is eliminated. In addition, almost universal access to the Internet means that relatively few warehouse locations can compete with the market without having to deal with a large number of real estate.
A simplified business model provides remote vendors with potentially lower costs or higher margins. The "early pricing" model attracts customers with low early price, which reflects that the manufacturer reduces the cost of goods with low overhead. Seller will then add transportation costs and any other applicable charges to the order prior to processing. Since the seller usually arranges transportation, it is quite possible that the transportation cost passed to the consumer is different from the transportation cost borne by the seller. Some online suppliers use it as a source of revenue to further increase profits or allow suppliers to advertise even lower upfront prices.
Free delivery is an important factor in online shopping. According to comScore, 65% of e-commerce transactions in the United States delivered free in the fourth quarter of 2017. Over the past few years, the number has remained stable (between 58% and 69%). In addition, free delivery (54% mentioned) was listed as the most important factor for online delivery by US respondents. Next came exclusive online transactions (23%), no business tax (10%), fast delivery (9%) and in store pickup (5%).
Many shoppers also see the cost of shopping as an obstacle to placing an order and leaving the cart before buying. According to the Internet retailer / bizrate insight consumer survey conducted in May 2018, 31.6% of respondents mentioned the latter as the main obstacle in the online shopping experience.
Some retailers offer some orders or free delivery service beyond a certain value threshold. This can vary depending on the commodity category. Retailers usually set a threshold slightly higher than the average order value to encourage buyers to buy more products. Retailers' profits then increase, so they will partially offset transportation costs.
