Free shipping drives online purchasing

In the US, online sales reached a record high of $1.25 billion on last week's "Cyber Monday", according to ComScore, with Tuesday (November 29) and Wednesday not far behind at $1.

In the US, online sales reached a record high of $1.25 billion on last week's "Cyber Monday", according to ComScore, with Tuesday (November 29) and Wednesday not far behind at $1.12 billion and $1.03 billion respectively. These numbers exclude spending on travel, auctions and large corporate purchases, so they provide a good reflection of the bargain-hunting start to serious Christmas shopping. In related research, ComScore has also highlighted the importance of free shipping to consumers.

On data up to December 2, ComScore notes that 63.2 percent of consumer online purchases included free shipping, an 11 percent increase on last year. The company also surveyed about 1,000 Internet users about the importance of free shipping to their purchasing decisions. ComScore says:

"More than one-third of respondents (36 percent) indicated that free shipping was 'very important' and that they would not make a purchase without it, underscoring the imperative for retailers to offer this incentive during the holidays. An additional 42 percent said that free shipping was 'somewhat important' and that they actively seek out free shipping deals. Only 15 percent of respondents indicated that free shipping was not particularly influential in their purchase decision."

As ComScore notes, this factor has already been recognised by many online retailers, who participate in a marketing event called Free Shipping Day. This year's will be held on Friday, December 16.

The high cost of shipping is visible in some products on both Amazon and eBay. These are offered at nominal prices -- perhaps a penny -- and all the profit comes from the margin on shipping. In some cases, including magazines and second hand books, the shipping cost may be more than the product is worth. "Free shipping" makes things easier for consumers, because they only have to decide whether an item is actually (to them) worth the selling price.

Amazon has tackled the problem for its regular customers by offering Amazon Prime. This provides US users with free shipping for an annual subscription fee of $79. (In the UK, the fee is £49.)

Can Google compete?

Google plans to compete against Amazon Prime by offering a one day delivery service, according to a report in The Wall Street Journal (Google Targets Amazon's 'Prime' With 1-Day Delivery). The story says:

"Google doesn't plan to sell items directly to consumers, said a person familiar with the matter. Instead, it will meld its search engine's product-search feature, which directs shoppers to participating retail websites, with a new quick-shipping service that Google will oversee."

Apparently Google is concerned at the loss of search profits. Amazon covers so many product areas that most users now search for products on Amazon instead of on Google, and this also helps Amazon sell advertising on its website. Product-related search advertising is a big money-maker for Google, and it wants to hang on to it.

However, Google has often failed when competing against other people's innovations: examples include Knol (aimed at Wikipedia) and Google Checkout (aimed at Paypal). In this case, Google would be entering an area where companies such as WebVan have already failed. However, in October 2010, GSI Commerce launched a service called ShopRunner, which looks like Amazon Prime, and charges the same annual fee. Maybe Google will just copy ShopRunner's copy of Amazon Prime.

Google is also competing against Amazon with Google Music, lauched last month, and both companies offer public cloud services.

@jackschofield

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