CORRECTED-YOUR MONEY-The true cost of free shipping

Mon Dec 17, 2012 10:21am EST

(In 11th paragraph, corrects the name of Monetate's chief marketing officer to Kurt Heinemann)

By Beth Pinsker Gladstone

NEW YORK Dec 15(Reuters) - What shoppers seem to want most this holiday season is free shipping. But at what cost?

Before the end of 2012, about 90 percent of retailers say they will offer free shipping, according to Shop.org, the website of the National Retail Federation trade group. But that kind of near-universal acceptance leaves a lot of room for variety.

Not all free shipping offers are created equal, and not all of these deals reduce the overall cost of your purchase. Multiple studies that say consumers want free shipping. According to Deloitte & Touche LLP's annual holiday survey, 71 percent of consumers rank free shipping at the top of their Christmas lists, although research shows cost often matters more. Even so, many shoppers do not go out of their way to find offers, or claim the ones that are right in front of them.

"Retail is detail, as they say," chimes Alison Kenney Paul, vice chairman and U.S. retail and distribution leader with Deloitte. "If you dive in, you'll find that it's free shipping on certain items with certain modes of shipping or free on just certain categories. You see that big yellow flashing neon sign, and underneath you have to read the fine print."

This is especially true for events like Free Shipping Day, on Dec. 17, when more than 1,500 merchants offer some kind of free shipping. Scan the list (http;//freeshippingday.com), and you see a range of offers from truly free shipping that is always available at retailers like Zappos, to ones with high required purchases to qualify, like J Crew's $175 minimum.

"Retailers are in business and shipping is not free to them, so they have to balance what they offer with the cost and how much it's going to increase their sales," says Dan Davis, editor in chief of Internet Retailer magazine.

So what do you have to know to get the best deals and not get duped? Pay attention to these key details:

1. Minimum purchase requirements

At Amazon.com Inc, the biggest online retailer, the gold standard has long been $25 for Super Saver shipping, and a $79 Prime membership gets you free shipping on thousands of items. Zappos, with free return shipping, is another leader, as is L.L. Bean, which offers year-round free shipping with no minimum. But for the rest of merchants, minimum purchase requirements can go up significantly.

"The caveats can lead to very dissatisfied consumers over the long run," says Larry Freed, chief executive officer of Foresee Research, an analytics company based in Ann Arbor, Michigan. "The purchase requirements may cause them to throw an item in a basket, but the long-range impact can be significant."

2. Shipping speed range

The free offers can take a week to arrive, which is why companies push faster, more expensive options. This season, Davis sees same-day shipping to be the big trend. Amazon is testing this in 10 markets, and even specialty retailers are trying it out.

Moosejaw, a Michigan-based outdoor clothing retailer, is creating zones near its warehouse facilities where consumers can get expedited delivery, says Kurt Heinemann, chief marketing officer of Monetate, an e-commerce consultant.

His company also did a study for the Western retailer Sheplers that showed targeted free shipping offers increased sales and brought in new customers in areas where they were having trouble competing. Offering geo-targeted free shipping increased revenue by 20 percent, and increased new customers by 48 percent. "They discovered a way to crack the difficult markets and increase marketshare,' he says.

3. Limited offers

At some retailers, advertised free shipping offers are only for certain categories, like toys, or on certain days, but everything else requires paid shipping. Free shipping discounts may cancel out other offers that may actually have a higher monetary value to consumers, like a 40 percent off deal. And some sites require the input of a code to get the free shipping deal, which allows the retailer to benefit from customer inertia.

Most retailers stop short of actually raising prices on items offered with free shipping because it would sour the relationship with customers too much, says Davis. "Whenever a retailer asks me for advice, I say a race to the bottom is death for any business," he says. "You're one click away from doing price discovery somewhere else. Companies are not going to develop relationships with customers that way."

4. Counting on price, instead

"Free shipping is the first thing people say they want, but what they say and what they do are often different," says Davis.

Consumers want the item they are shopping for most of all. So they will buy it from a retailer regardless of shipping costs, if it's what they really want.

Even bargain experts fall prey to this. Andrea Deckard, who runs the site Savingslifestyle (savingslifestyle.com), hardly ever pays for shipping. But the other day, the Cincinnati, Ohio-mom was ordering from Amazon, and ended up purchasing a pair of CrossFit knee socks, a specialty item for exercising, from a marketplace merchant, and paid for shipping. "It was more of a convenience for me to get everything in one spot," she said. (Editing by Lauren Young and David Brunnstrom Follow us @ReutersMoney or here)

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