Target announced that it would immediately begin offering free shipping on all online orders of $25 or more, halving its previous minimum of $50. It’s the latest move in an ongoing, multilevel chess game that has free-shipping pieces occupying spaces all across the board: Amazon is at $35 for non-Prime members, Walmart occupies Target’s former $50 space, and Kohl’s threshold is $75.
“We saw an enthusiastic response to our free shipping offer over the holidays. Now, whether guests are stocking up or doing fill-in shopping, we’ve enhanced our year-round shipping offer to be one of the best in all of retail,” said Jason Goldberger, president of Target.com and Target mobile operations in a release announcing the move.
But apparently there was more behind Target’s holiday offer of free shipping on all orders than just being nice to its guests. “They probably ingested a tremendous amount of data from that promotion about conversion rates related to shipping costs,” said Tom Caporaso, CEO of FreeShipping.com. “Retailers do as much as 40% of their volume during the holidays. Target might have said, ‘Lets remove the threshold, open the floodgates, digest the outcome, and make a decision on where the threshold does the most good.’”
Web business is becoming ever more important to the retailer, and free shipping plays a huge role in pricing strategies online. Target.com set sales records last Thanksgiving and CyberMonday, and mobile accounted for 60% of the website’s traffic. The retailer also started shipping some orders from select stores to improve delivery times and has announced plans to open two new online fulfillment centers in Memphis and York, PA.
With today’s announcement, Target also sent notice to its chief competitors. “This puts a lot of pressure on them,” Caporaso said. “Typically, free shipping thresholds are set to be a little higher than the retailer’s average order values to stimulate incremental sales. Kohl’s average order is in the $60 range, which explains why theirs is so high.”
Free shipping thresholds may also be competitively set. Best Buy’s is $35, even though its average order value is above that, most likely to stay competitive with Walmart and Target. But all the old free-shipping strategies are undoubtedly being reconsidered in retail headquarters following Target’s move.
