The Ecommerce Shipping Price Wars Rage On

As Blood Sweat and Tears sang in their 1960s hit “Spinning Wheel,” what goes up, must come down.

In the ongoing battle over share of ecommerce wallets, Amazon and Target are moving in different directions with their free shipping policies.

Amazon this week lowered its threshold for free shipping for non-Prime members from $35 to $25, while Target did the reverse, raising its threshold from $25 to $35. Amazon had just lowered its threshold from $49 to $35 in February, weeks after Walmart ditched its ShippingPass program and dropped its threshold from $50 to $35.

Obviously there’s a very involved calculus in determining where to set “free” ecommerce shipping thresholds, including the demographics of your customer base, the type and price of products sold, fulfillment and shipping costs, etc. But at the same time, it’s fairly apparent that moves like this are sometimes knee-jerk reactions to actions taken by competitors.

The thinking probably goes something like this: If enough price-conscious shoppers will buy from us based on a $10 drop in the threshold, it will more than offset any lost revenue from the move. Or failing that, it will at least buy more customers and short-term loyalty.

What’s interesting is how much attention Amazon is paying to moves by Walmart, its distant but closest competitor in ecommerce. This has been especially true since Marc Lore came on board from the acquisition to head up Walmart’s ecommerce efforts. Amazon head Jeff Bezos had dealt with competition from Lore a few years before by simply buying his company Quidsi and bringing him onto its team. So Bezos is certainly well aware of his ecommerce acumen and savvy.

Target, also locked in an ecommerce battle with Walmart and Amazon for value-conscious customers, cut its free shipping threshold in half from $50 to $25 in February 2015, until this week’s move. “Target regularly reviews and adjusts our online shipping policies and practices to better serve guests and enhance our business” the company said in a statement to CNBC. Target also said that “a small percentage of orders are less than $35, so the majority of orders will continue to ship for free.”

Like many other retailers, both Target and Walmart have the advantage of using their vast store networks as distribution centers to reduce shipping costs, vs. the 70-plus U.S. fulfillment centers operated by Amazon – frequently cited as a key competitive asset. But Amazon continues to increase the pressure by growing all facets of its distribution network and expanding the massive scale of Prime, an extremely compelling and sticky program.

While a consultant recently told Multichannel Merchant he didn’t think Lore and were keeping Jeff Bezos up at night – instead speculating the CEO burns the midnight oil to dream up the next blockbuster Amazon initiative – he probably has at least one eye open, looking toward Bentonville, AR, and perhaps Minneapolis, MN as well.

Mike O’Brien is Senior Content Manager of Multichannel Merchant


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