The rise of free shipping: 8 moments that transformed e-commerce
The “pain of paying” is a behavioral economics theory that refers to the negative emotions humans feel when making a purchase. Humans are a loss-averse species and we react more strongly to losses than we do to equal wins or gains. So, while some purchases hurt more than others, spending money will, on some level, always inflict a bit of psychological pain.
This is the reason so many consumers abandon their shopping carts at checkout—online, anyway. Extra fees like taxes and shipping costs added to online purchases make an already painful transaction that much tougher to swallow. Many companies, starting with Amazon, have figured out that offering free shipping is an effective way to offset the pain of paying and usher consumers down the last levels of the e-commerce conversion funnel.
Consumers have come to expect perks like free or fast shipping—both, ideally. Without the guarantee of either, people are unlikely to complete a purchase. And with free shipping came the advent of free returns, and then refunds without returns. These expectations and efforts to mitigate the pain of paying have made us, on the whole, more irrational and wasteful consumers. When we are more inclined to buy because of a perceived no-cost service, we are wasteful at every step along the supply chain.
The coronavirus pandemic exacerbated inefficiencies along the supply chain and reinforced bad consumer habits. Practices like bracketing—buying multiple of the same item like pants and returning the unwanted items—wouldn’t be so terrible if the supply chain were designed to function in reverse. However, it is woefully ill-equipped to efficiently process returns.
According to Optoro, a reverse logistics company, roughly 2.9 million tons of returns went into landfills in 2020—not restocked on shelves. With an estimated record $761 billion worth of returned merchandise in 2021—both online and in stores—the environmental impacts of incentivized buying and returning are likely to worsen.
To track how corporate practices and consumer behaviors have changed over time, Smartlook compiled a list of eight important moments and trends in free shipping in the internet age.
