MasterCard Enters Free Shipping Fracas

Global payment company MasterCard announced that its customers will get free, two-day shipping from five of the Internet’s top retailers. MasterCard also offered a premium service which extends the complimentary, two-day delivery supply to other online merchants.

MasterCard joins American Express and PayPal in offering customers free, two-day shipping choices at select online retailers. Earlier this year, American Express provided its cardholders free permanent membership in ShopRunner, a service that provides its members free, two-day shipping at several retail sites. Likewise PayPal recently analyzed two-day free shipping supplies with a few retailers, whereby shoppers can get free, two-day shipping with no annual fee if they just checked out using PayPal. The deal had no minimum purchase requirement.

MasterCard has a brand new website in support of its free shipping offer.

Together ShopRunner, PayPal’s offer, and MasterCard’s recent movement could be a part of what some in the retail sector are calling the Amazon Prime impact, which is a tendency to faster, free shipping services driven in part by Amazon’s Prime service. These offers are changing customer expectations, so that merchants, irrespective of size, might want to change free shipping supplies to reflect the two-day service available from Amazon Prime, ShopRunner, and now MasterCard.

MasterCard Offer Aims at Large Retailers

The “Free Shipping by MasterCard” offer features five of the retail industry’s best known merchants: Best Buy, QVC, Macy’s, Kohl’s, and Walmart. Online purchases made from these sellers can earn free shipping around $20 per purchase and $500 maximum on a six-month period.

To make the most of this MasterCard offer, shoppers need to enroll at a special MasterCard website , register and shop from the website, select expedited transport at checkout, and, of course, pay with a MasterCard. Customers will need to pay for the two-day delivery upfront and email the order confirmation to MasterCard to be reimbursed.

Customers must take several measures to use the MasterCard free shipping deal.

Regular online shoppers may buy an annual subscription for $69.99, extending the free, two-day shipping to approximately 30 larger retailers, including Nordstrom, J. C. Penney, Home Depot, and GameStop. The premium yearly subscription also increases the maximum limit from $500 for six months to $1,500 each year.

Implications for Little, Mid-sized Ecommerce Merchants

Free shipping is now — or, at least is becoming — a key to internet ecommerce success. For instance, Forrester Research’s U.S. Online Holiday Retail Forecast 2013, which premiered on November 25, discovered that many online shoppers will leave a website and not buy anything if there’s not a free shipping offer available.

Clients may consider shipping as an excess cost or just a waste of money, which differs from how they compute the gas and hassle of visiting a store or mall. Even offering free shipping with a minimum purchase can make clients feel better about the checkout procedure.

Where MasterCard’s offer differs is that it’s increasing the expectation around the length of time a package should take to arrive, and, possibly, changing how vendors will need to consider free shipping.

Think about the version at ShopRunner, which for several reasons, may be the most potent Amazon Prime competition right now. ShopRunner is a promotion tool for merchants wherein the cost of two-day delivery and the 3-to-5 percentage commission which ShopRunner takes on every sale is the cost of acquiring the customer.

Once an ecommerce merchant purchases pay-per-click advertisements, invests in email advertising, buys banner ads, or even prints a brochure or catalog to include in the transport box, which merchant is investing to acquire or retain customers.

When it comes to accounting for these marketing investments, pay-per-click advertising, for instance, is often taken as part of advertising expenses generally rather than attributed directly to one transaction. Because of this, it’s possible that merchants are losing money on certain orders due to the advertisements and promotional expenses related to these special orders, but making a profit overall thanks to spreading out advertising costs over all orders and generally raising the total quantity of orders and reorders.

Ecommerce businesses might need to begin considering shipping costs, even expedited transport costs, in a similar manner, not necessarily associating these costs with individual orders, but considering the company as a whole to determine whether the free shipping offers are rising profitability or market share business wide.

New Opportunity for Payment Providers

Free, two-day shipping offers also represent an opportunity for payment companies, such as MasterCard, because these free shipping supplies could give a specific payment support a competitive advantage. After all, most shoppers will pick the payment card or payment option that offers free shipping over other payment options.

For the most part, PayPal, American Express through ShopRunner, and now MasterCard are focusing on big retailers, but there might be another chance with small and midsize online merchants.

What if, for instance, PayPal began to provide ecommerce merchants discounted payment processing fees for supplying free shipping once the shopper pays with PayPal? In this example, a number of the merchant’s free shipping costs are offset by a generally lower fee program, thus the merchant will be prompted to promote the PayPal-driven offer. PayPal has little to lose because it’s gaining incremental transactions.