“Free shipping” and “free returns” are two common terms attached to modern e-commerce. However, neither is accurate—they are marketing talk—twisting the truth in a favorable way to increase sales.
A more accurate term would be distributed shipping, meaning the cost of shipping is distributed among other parties. Somebody—many times multiple somebodies—has to pay for the shipping.
When I’ve said this to some shoppers, they have responded with comments like, “Well, it’s free to me.” That too is usually an oversimplification, the cost is simply hidden and thus psychologically easier to bear.
Companies want to make money. Free shipping has become a common perk with e-commerce, creating pressure for companies to offer it. However, it costs money to pay for shipping materials, pulling stock from the warehouse, and packaging and labeling product for safe shipping. Then there are the actual shipping expenses, which include fuel, labor, transportation (actual cost of trucks, trains, and airplanes), transportation maintenance, insurance, and more.
Somebody has to pay these costs.
There are many options for paying the costs. If it is a short-term promotion, it might come out of the marketing department’s budget. That means less money for other marketing efforts. (The marketing money also is an investment—sacrificing immediate profit for future profit.) The company may simply raise the prices of all its products to maintain its profit margin, thus hiding the shipping costs.
The point is, there is no such thing as “free shipping.” Expanding on that, very little in life is free. Economist use the term opportunity cost. Opportunity cost is what you give up in order to make the choice you did. It works for money, time, and other assets. If I chose to take a nap for the next hour, it means I cannot exercise, work in the garden, or eat a meal.
We make decisions about how to spend our time and money constantly, comparing the immediate value of choices compared to other choices. This value can change over time. For example, if I just woke up from a nap, taking another nap is going to be less appealing than it was earlier when I was tired.
The value of choices is not always as clear as we might desire. Many important choices have positives and negatives regardless of what choice is made. In this section, I will be posting thoughts about the positives and negatives of various choices, focusing on the costs both sides of an issue may want to minimize.