Low Free Shipping Minimum as a Moat Against Competitors



Target’s bet on free holiday shipping paid off as it outpaced Amazon in online sales growth during the fourth quarter with sales growing by 34% compared with Amazon’s 25% growth.

The Minneapolis-based retailer slashed to $25 from $50 the threshold for free shipping during the holidays.

That is still comparatively small potatoes:

Target offered a similar free shipping deal during the 2014 holiday season. Repeating that strategy increased the chain’s overall sales coming from online from 3.5% to 5%, Motley Fool analyst Demitrios Kalogeropoulos told Quartz.

“Anything above 3% is pretty darn good,” Kalogeropoulos said.

With regards to Amazon raising its free shipping minimum in the US I wrote this week:

If one follows the logic that there are huge growth opportunities ahead for Amazon, so huge in fact, that it makes sense to reinvest every penny of profit back into growing businesses, then why does it simultaneously make sense to make steps that push regular customers to the customer loyalty program but that also push new and irregular customers away? That does not seem like a growth strategy. What is the angle here? Is the US maybe such a mature market for Amazon (with around half of US households Prime subscribers) that this makes sense specifically for the US? (..)

[As] a corollary to the first question, a low minimum for free shipping is also a moat against new entrants.

Which should beg the question for online retailers what models there are to pursue to make the free shipping minimum as low as possible.

Zalando, which has the benefit and the burden of only selling fashion, out of necessity offers free shipments and is increasing its service around that pillar.

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