Carragee Consulting

Amazon Gives No Reason to Raise Free Shipping Minimum <–Link to NYTimes article

Shipping rates have gone up every year for a long time, but for 10 years Amazon provided free shipping on orders over $25.  If you think about it, this policy change is a long time in coming and most welcomed by Amazon’s competition.

Amazon is a revenue behemoth, but they aren’t actually profitable.  Seems like they are just going back to basics and figuring out where their profit leakage is occurring.  Free shipping on small orders was a great strategy to drive sales and pull purchases from the competition, however with order sizes of just $25 the shipping costs represent too high a percentage of the purchase value to be profitable stand alone transactions on average.

Under the mantra of “You’re only as strong as your dumbest competitor”, smart online retailers are likely to follow suit, and raise their free shipping minimums too.  Failing to raise that minimum as freight costs were rising over the past decade represented an unnecessary cost absorption on Amazon’s part which impacted its smaller competitors profitability too.

An interesting angle on this, is that Amazon waiting until Prime was fully launched and going strong before raising the minimum, meaning that some of their most loyal customer’s will not be impacted by this policy change.  Its too bad they didn’t communicate this better, but the pricing actions, if belated, are still quite sound.