Critique on-L.L. Bean Free Shipping

http://www.usatoday.com/money/industries/retail/2011-03-24-ll-bean-free-shipping.htm?loc=interstitialskip

This article is about L.L. Bean providing free shipping for online purchases. The writer suggests that customers will buy more frequently with free shipping. She also mentions how important consumption is as part of the GDP equation and that included in production are durable and non durable goods which L.L. Bean provides. She also believes that L.L. Bean will have “one up” on its competitors because customers are more attracted to free shipping. Therefore, L.L. Bean acts as a substitute to other brand name products. She states that initially, the company will lose money due to the extra cost of shipping, but in the long run, it will do the company good because sales will continue to increase.

I agree with several of the ideas pointed out in this blog. L.L. Bean is listening to its consumers when it comes to the demand of free shipping. It is also good to suggest L.L. Bean is serving as a substitute to other companies. Though, they are now adding extra costs of shipping making their revenue go down initially, the increase in sales is looking promising. However, there are several things that could be making the demand for L.L. Bean increase besides free shipping. This new marketing strategy could also cause damage in their total profit which was not mentioned.

Quantity demanded has an inverse relationship with price and though L.L. Bean is removing a shipping cost from the customer, they aren’t technically lowering the price of the good. A customer may not buy they’re preferred brand online not because the actual product is cheaper, but because of free shipping. Also, with the recession, L.L. Bean may have moved to free shipping because consumers were no longer willing to spend the extra money on shipping with the lower amounts of income they were receiving. This is a good example of opportunity cost rising. People aren’t feeling that the product is worth the money being asked for it whereas if money wasn’t as tight, they may have been more willing to spend the extra cash.

So, sales for L.L. Bean have increased, but, as I said above, it could be due to the fact that we are coming out of a recession and income is slowly rising to the point where people feel more comfortable buying the luxury goods. Also, just because there is an increase in sales does not mean the company is making a profit. With the extra shipping expense, they’re total costs have increased and may be more than the revenue brought in. Hopefully in the long run, more customers will react favorably to the new no shipping benefit continuing to increase sales.

Lastly, a good negative point to the free shipping would have been to touch on elasticity and customer loyalty. Some companies do not have free shipping because they do not need it. They’re products could be more inelastic compared to L.L. Bean’s elastic products because people will purchase them whether they have to pay shipping or not. Also, loyal customers will still buy the product regardless of shipping costs because it is the brand they prefer. For many brand name companies it is the loyal customers who bring in the most revenue, not the bargain shoppers. Bargain shoppers tend to spend less because they are looking for good deals. So, in the long run, they could still be losing money instead of gaining more customers. Only time will tell.