Cheap Shipping Doesn't Matter

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Tiny Enable Holdings (OTC BB: ENAB), the parent company of would-be eBay (Nasdaq: EBAY  ) competitor uBid, hopes to take the discount-merchandise market by storm with its reborn RedTag shopping site. The secret sauce? Cheap shipping!

Good luck with that one, dude.

Sure, charging $1.95 per order sounds like a great deal beside direct competitor's (Nasdaq: OSTK  ) $2.95. Quoth Enable CEO Jeff Hoffman: "We're willing to take less for shipping because we think you'll buy five more items from us -- as opposed to if we got as much as we could from you, shipping this product, you may never buy again." Overstock CEO Patrick Byrne scoffed at the threat, because his frequent $1 and free-shipping specials actually bring the average shipping cost down to less than $2.

Great, Patrick. But both of you are missing the point. If you're not willing to do free shipping, you might as well stick with passing on the full FedEx (NYSE: FDX  ) or UPS (NYSE: UPS  ) bill to the consumer.

Walking the talk
In Predictably Irrational, Duke professor Dan Ariely shows how (Nasdaq: AMZN  ) figured this out, quite by accident. With free shipping in full swing everywhere else, Amazon charged 1 franc for shipping in France. Amazon's French market lagged mysteriously behind the rest of the world in sales growth -- until the company dropped that petty charge of about $0.20 per order. Moving from "really cheap" to "FREE!" made the French join in Amazon's worldwide growth rates.

And there's plenty of evidence for the awesome power of "free" in that book. Here's a free $10 gift certificate, and here's a $20 certificate that would cost you $7. Nearly everyone would choose the free $10 certificate, even if the other option is a 30% better deal. In Dr. Ariely's experiments at local shopping malls, everyone swung that way.

Change the equation ever so slightly, and you can choose between a $10 gift coupon that will cost you $1, or a $20 option that sets you back $8 up front. Suddenly, people get all rational about this choice and pick the $12 net about 64% of the time. Change the purchase prices to $5 and $12, respectively, and 71% will go for the big-ticket item that makes them $8 richer rather than $5. These experiments were repeated to account for the hassle of hauling the wallet out of your pocket, but FREE! gift certificates were still special.

Foolish takeaway
So again, good luck with that "cheap shipping" strategy, RedTag. I think you would have been much better off slapping a massive "FREE SHIPPING!" banner on your front page from day one. Assuming that you actually make a gross profit on each item you sell, however small, you could make a very nice living off the massive sales increases I'd expect. Short-term shipping promotions are all good, but they don't have the same mass-psychology effect that a straightforward "we ship your stuff for free" policy would.

Next time you see some company ascribing great expectations to its latest sales and marketing campaign, check to see whether there's anything "FREE!" about it. Retailers like Overstock could go with free shipping, while service companies such as AT&T (NYSE: T  ) might give you a free phone in exchange for a fatter contract. These things work. Merely cheap shipping and low-cost phones don't appear to be worth the trouble.

Further Foolishness:

United Parcel Service is a Motley Fool Income Investor recommendation. FedEx, eBay, and are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure would take the better total deal every time. Well, in theory.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2008, at 10:54 AM, prginww wrote:

    Although I don't disagree with your article, I would like to point out that is not a ebay competitor. With the current changes in place, they are getting away from that idea and focusing on inventory liquidation, rather than a marketplace (which is what ebay is).

  • Report this Comment On September 03, 2008, at 11:00 AM, prginww wrote:


    just to say, that French Francs does not exist anymore since the end of 2001.

    In those years France ecommerce was not yet so developed and Actually Amazon France was launched in September 2000.

    To me it seems that the underdevelopment of the site in 2001 was more linked to the age of France business than to .10$ shipping.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 718871, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:48:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
AMZN $818.36 Down -4.23 -0.51% CAPS Rating: ****
EBAY $28.81 Down -0.01 -0.03%
eBay CAPS Rating: ****
FDX $174.40 Up +0.81 +0.47%
FedEx CAPS Rating: ****
OSTK $14.70 Down +0.00 +0.00% CAPS Rating: *
T $36.52 Up +0.09 +0.25%
AT and T CAPS Rating: ****
UPS $108.08 Down -0.53 -0.49%
United Parcel Serv… CAPS Rating: ****