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Amazon lowers its free shipping threshold to $35

February 20, 2017 04:20 PM
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Amazon.com Inc. has responded to Wal-Mart Stores Inc.’s decision to lower its free shipping threshold to $35 by doing the same thing.

Amazon a year ago raised its free-shipping minimum to $49 from $35 for shoppers who are not a part of its Amazon Prime program, which offers members free two-day shipping among other perks in exchange for a $99 annual fee.

It’s not clear when Amazon, No. 1 in the Internet Retailer 2016 Top 500 Guide, made the change. Amazon did not announce the change, but did make note of it in the help section of its site. Several media outlets reported that the change was noticed over the weekend. An Amazon spokeswoman on Monday declined to elaborate on the new policy.

Amazon’s move comes three weeks after Wal-Mart (No. 4) began offering free shipping on all online orders of $35 or more after deciding to scrap its ShippingPass program. ShippingPass was a $49 annual subscription came with free two-day shipping on all online orders with no minimum. A Wal-Mart spokeswoman declined to comment on Amazon’s new shipping threshold.

Industry experts say Amazon’s decision to lower its free shipping threshold is a sign that the retail giant is paying close attention to its largest competitor.

“If there is one company that has deep enough pockets and the fulfillment network vast enough to compete with Amazon, it’s Wal-Mart, so of course Amazon is watching Wal-Mart like a hawk,”  says Guru Hariharan, CEO of retail and e-commerce pricing analytics firm Boomerang Commerce. “(With) all the moves that Wal-Mart is making, with the reorganization that is happening and the technology investments they have made, Amazon would want to play offense at this point instead of defense and compete with Wal-Mart where they can potentially cause some harm to Amazon’s market share.”

Wal-Mart has been restructuring its e-commerce team under the leadership of Marc Lore, co-founder of online marketplace Jet.com, which Wal-Mart bought in August for $3.3 billion. Wal-Mart this year has purchased online shoe retailer Shoes.com and outdoor gear retailer Moosejaw.

“Lowering the [shipping] threshold is a way to mitigate the risk of consumer switching (from Amazon to Wal-Mart),” says Traci Gregorski, senior vice president of marketing at Market Track.  A major advantage of e-commerce is the ability for a retailer to quickly make decisions and respond to competitors, she says.

Pam Goodfellow, consumer insights director at consumer research firm Prosper Insights & Analytics, says Prosper’s data shows around 40% of U.S. adults have an Amazon Prime membership, which leaves a fairly sizable part of the population up for grabs.

“Wal-Mart’s recent free shipping upgrade – inclusive to all shoppers – certainty upped the ante, so it appears that Amazon’s move to lower its own free shipping threshold was a competitive response to Wal-Mart,” she says. “In the short-term, this seems to be a win-win situation for consumers – free shipping is a key incentive for driving online shopping – but retailers are squeezing their profitability and longer-term, product pricing, quality, and other aspects of the retail experience may suffer in order to compensate for the real cost of free shipping.”

There are differences between Amazon’s $35 free shipping threshold and Wal-Mart’s. Amazon promises all orders within five to eight business days, while Wal-Mart promises to have your order delivered within two to five days.

Another differentiator between the two retailers’ offerings: The number of products that qualify. An Amazon spokeswoman says there are more than 50 million items available on its site that are eligible for free shipping. Wal-Mart has more than 2 million products eligible for free shipping.

“Competition has moved beyond straight price comparisons, and retailers know that in order to compete, value-adds like free and expedited shipping are now an expectation on the shoppers’ part,” Gregorski says.

“This was certainly a very interesting move on behalf of Amazon, as Amazon is generally thought of as being pretty bulletproof these days,” Goodfellow adds. “Its response to Wal-Mart’s free two-day shipping deal not only shows that Amazon is concerned with maintaining its customer base of both Prime and non-Prime shoppers, but also how nimble it can be when countering the advances of competitors.”

 

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