Shipping

Amazon's shipping policy is making it lose money. Should you?

Kaidi Tiitson

Kaidi Tiitson

Jan 1, 2022

amazon's shipping policy may not be financially profitable, but it's profitable in the long run

Inside this article

  • iconAmazon’s shipping policy, the reason for its success
  • iconThink of shipping as an investment instead of a cost
  • iconConclusions
  • Is your survival instinct telling you to learn from the giant in order to step up your game? Well, Amazon is a huge public case study for online retail and we all should be paying attention.

    Amazon’s shipping policy, the reason for its success

    Shipping is one field in the online business where Amazon has been playing a game of its own. And being straightforward, Amazon’s shipping policy is one of the main reasons it can be called the mother of all online retail today.

    Amazon was a pioneer not only in offering free shipping but in heavily subsidising shipping costs for those products that did not qualify for free shipping. The only thing that has forced people to spend even more money on Amazon than implementing the threshold has been, of course, Amazon Prime.

    Amazon Prime membership offers express shipping on thousands of products in exchange for a fixed fee. Prime is a feature the Amazon CEO himself takes most pride in implementing. And that is quite telling.

    Amazon has repeatedly stated that Prime customers shop more often, spend more money per purchase and shop a wider range of goods than non-Prime customers.

    prime air shipping delivery by amazon

    Source: Forbes

    This also explains why they took the effort to develop their own courier services. Their business model has gone from almost a purely B2B to a B2C driven one, with demand growing relentlessly. Meaning that quite often couriers just can’t cope with it.

    There have been couriers losing accounts with Amazon because they cannot meet their volumes at suitable prices. Or because they can not provide adequate service levels.

    There is also increasingly higher offer for low-cost, but questionable quality, transport services by companies trying to take advantage of the surge in parcel delivery. But Amazon knows to stay well clear of those.

    At the same time, there is a lot of lag for premium couriers to modernise their business fast enough to be able to offer a seamless service to online retailers.

    Now, for couriers, there is no big problem —no one ever complained about having too much demand. But for online shops delivery is key, and this is why Amazon is investing so much money into this crucial area.

    Think of shipping as an investment instead of a cost

    Any online shop offering free (or well-priced) fast shipping will experience a growing customer base.

    Building some of your shipping costs into your products’ cost structure might seem like reducing your margins, but like Amazon shows, you cannot build an online business with unreasonably high margins in mind. You save, for instance, on rent, personnel and associated taxes. So it makes complete sense to put some of those savings to work by directly investing in your customers.

    Amazon clearly demonstrates that offering an affordable premium shipping experience pays off. It will directly lead to faster growth in customer numbers and repeat purchases. This, in turn, means greater revenue and more available cash for business development. Which leads to more sales and bigger customer numbers, and… you get the idea.

    Every time I stumble upon a webshop that is clearly trying to make money from shipping, I just cringe. It is like watching someone write their own death sentence. Literally, there is no more predominant reason for shopping cart abandonment than an unexpectedly high shipping cost.

    Not only Amazon, but all of the most successful online retailers, subsidise shipping costs by building some of the cost into the product price and slightly reducing their margins.

    Now, in situations where building the shipping cost into the price is not viable because of customers price sensitivity, or where there is no more room left for lowering margins, the typical online retailer would be reckless to apply free shipping or even something like Prime.

    However, Prime's success is not only about free delivery, but more importantly fast and premium delivery. This means, that even if offering free shipping on every product in your online store would make no sense, providing swift superior shipping at a reasonable price can also work its magic. After all, shipping is the maximum expression of customer service of any online retailer. And we all know the difference good customer service can make.

    Conclusions

    You may not necessarily have to go to the extreme of Amazon and set out to make a loss for years in exchange for growth.

    What you need is to take a good look at your shipping policy and your delivery services and find out how you can make it as easy as possible for your visitors to convert by offering them a shipping service that puts a smile on their face. As Amazon has clearly shown, it is one of the surest ways to an online shop’s success.

    For this, you can connect your online store to Outvio in a matter of minutes —yes, minutes— and start shipping with your own rates or use Outvio's pre-set shipping rates to automate and speed up your order fulfillment process today!