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‘Free’ delivery plans profit both retailers and customers

Free-delivery subscription (FDS) plans come surprising close to being a free lunch. They can offer financial benefits to everyone involved: retailers such as Target and Amazon and their customers, who intend to buy many products and take advantage of free shipping.

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In March, Target became the latest mega-retailer to offer “free” delivery — for a price. For $99 a year, subscribers to Target Circle 360 can place unlimited orders without having to worry about shipping costs. Target competes with similar plans offered by Walmart and Amazon.

Of course, someone ultimately must pay those delivery costs. Or do they?

According to new research from Texas McCombs, free-delivery subscription (FDS) plans come surprising close to being a free lunch. They can offer financial benefits to everyone involved: retailers such as Target and Amazon and their customers, who intend to buy many products and take advantage of free shipping.

The paper was co-authored by Anant Balakrishnan, professor of information, risk, and operations management. With Shankar Sundaresan of Rutgers University and McCombs graduate Chinmoy Mohapatra — now at Amazon — he explored whether FDS services are a good business move, compared with the traditional practice of having customers pay extra for shipping.

“We saw some articles in the business press that the actual cost of delivering goods was more than twice the amount they recover from subscription fees,” Balakrishnan says. “It begs the question: How can this be sustainable?”

For example, he says, if a company spends $8 per order on shipping costs and charges $80 for its subscription, its operations costs exceed the fee after 10 orders. What’s more, customers who subscribe to FDS place smaller orders more frequently, instead of grouping items together to save on shipping. That further increases the company’s total delivery costs.

It’s hard to get cost and revenue information from mega-retailers, who prefer to keep logistics data secret, Balakrishnan says. Instead, he used computer modeling, analyzing 3,125 different combinations of delivery operations and customer types.

On average, he found, compared with traditional paid delivery,

  • A universal FDS plan, where all customers pay the same subscription fee for unlimited free deliveries, generated 33.7% more overall profit.
  • A tiered plan, offering extra perks for higher fees, generated an additional 1.9% in profit over the universal plan.

The reason, he says, is that other factors increase profits enough to make up for what the retailer loses on shipping.

More purchases. 

“People who are subscribing to these plans buy more on average every year,” Balakrishnan says. Since they no longer pay separate shipping for each purchase, their cost per unit is lower, prompting them to purchase more. Companies benefit because they earn a profit margin on each purchase.

Locking in customers. 

Even heavy shoppers aren’t likely to sign up for every FDS service available. They’re likely to do more shopping with whatever retailer they’re subscribed to.

“Once you lock in a customer to a subscription, they may shift their purchases from other places, as long as the price is comparable,” Balakrishnan says.

Adding value.

In addition to free shipping, retailers can add other perks, such as access to online entertainment, exclusive sales, or different return options. If the package is attractive enough, customers might be willing to pay more than they would spend for shipping alone. Amazon Prime has steadily increased its price from $79 to its current $139 a year.

But FDS plans don’t work for all retailers and all customers. Some customers may not shop enough to make the plan worthwhile. Others may shop so often that it would hurt a smaller retailer to offer them unlimited free shipping, even with a fee.

Giving customers flexible options works best, Balakrishnan says. For example, a retailer can offer a subscription fee that includes free shipping but limits it to a specific number of orders.

The biggest takeaway, Balakrishnan says, is that a mix of FDS and pay-for-delivery (PFD) options can increase business for retailers while saving money for frequent shoppers. In homage to a well-known ad campaign for American Express, he considered titling his paper, “Membership Has its Benefits.”

Now that he’s shown how combining FDS and PFD can work for retailers, he says, the next step might be to look at how they can compete within these frameworks. Other avenues to explore include getting and analyzing empirical data from companies, and studying the economics of alternative business models for last-mile delivery operations.

“I see Amazon trucks almost every day making deliveries to multiple households,” Balakrishnan says. “If many of my neighbors are Prime subscribers, and they keep ordering often, the delivery costs get amortized over multiple deliveries. So, delivery costs for Amazon may be lower. I think this is very important for us to study later.”

Subscription Pricing for Free Delivery Servicesis published in Production and Operations Management.

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Reversible words can lower consumer disbelief in ads

A simple word choice in marketing messages can significantly impact how confident consumers feel about believing – or not believing – a claim.

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It’s estimated that consumers experience hundreds if not thousands of marketing messages daily. While the exact number can depend, how much someone believes the message can be more important for marketing success than the number of messages they see. 

A new study reveals that a simple word choice in marketing messages can significantly impact how confident consumers feel about believing – or not believing – a claim. Researchers found that when words differ in their “reversability,” or how easily people can think of their opposites, it can trigger different mental processes when consumers evaluate marketing language. 

Imagine the messaging options for a new sunscreen designed specifically for those who like a strong scented product. The first product description reads, “The scent is prominent,” while the second notes, “The scent is intense.” The word “prominent” is uni-polar, meaning people tend to negate it by adding “not” to the original statement.

“Intense,” though, is a bi-polar word, meaning readers can easily come up with its opposite meaning and negate the statement by replacing it with its antonym. In this example, “The scent is mild,” instead of, “The scent is intense.” 

“When people encounter easily reversible words, like ‘intense’, in messages processed as negations (mild), they experience lower confidence in their judgements compared to words that are hard to reverse, like ‘prominent,’” explained Giulia Maimone, a postdoctoral scholar in marketing at the University of Florida Warrington College of Business. 

Across two experiments of more than 1,000 participants, the research demonstrated that this effect occurs because negations of bi-polar, or reversible, words engage a more elaborate cognitive process requiring additional mental effort, resulting in lower confidence of the statement’s truthfulness. 

Based on their findings, the researchers suggest that marketers take this advice when crafting language: for new products, use affirmative statements with easily reversible words, like ‘The scent is intense’ in the sunscreen example, which most consumers will judge as true with high confidence. Importantly, this language would also minimize the confidence of consumers who will be skeptical about the message, as they will process it via a more complex cognitive process that reduces confidence in those consumers’ disbelief. 

“This simple lexical choice could help companies maximize confidence in their desired messaging and minimize confidence among the doubters,” Maimone explained. 

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If you’re a perfectionist at work, your boss’ expectations may matter more than your own, research finds

Help your employees by clarifying expectations through regular feedback and performance conversations to reduce role ambiguity, as doing so can provide employees with a better understanding of role expectations and enhance mutual understanding of those standards.

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If you’re among the 93% of people who struggle with perfectionism at work, new research suggests that your experience may depend less on your own high standards and more on whether those standards meet your supervisor’s expectations. 

Researchers from the University of Florida Warrington College of Business found that whether perfectionism helps or harms employees depends largely on whether employees’ personal standards align with their supervisors’ expectations. 

Specifically, they looked at the connection between employees’ self-oriented perfectionism, or the expectations of flawlessness they set for themselves, and supervisors’ other-oriented perfectionism, which reflects the extent to which they set excessively high standards for and critically evaluate their employees’ performance. 

Using data from more than 350 employees and about 100 supervisors, the researchers found that perfectionism’s impact depends on whether employees’ standards align with what their supervisors expect and how clearly those expectations are understood. 

When employees’ personal standards are aligned with their supervisors’ expectations, they tend to experience less role ambiguity, meaning they have less uncertainty about the expectations and standards for their role, why those standards matter and the consequences of not meeting them. This clarity in their work is linked to better performance, lower burnout and higher job satisfaction. 

“Problems between employees and their supervisors are more likely to arise when these expectations don’t match,” explained Brian Swider, Beth Ayers McCague Family Professor.

The most difficult situation occurs, Swider and his colleagues found, is when supervisors expect higher levels of perfectionism than employees expect from themselves. In these cases, employees reported greater uncertainty about their roles, along with worse work outcomes including higher burnout and lower job satisfaction.

“If you’re an employee who struggles with perfectionism at work, our findings suggest that understanding your supervisor’s expectations may be just as important as managing your own tendencies towards perfectionism,” Swider said. “Talking to your supervisor about priorities, standards and how your performance will be evaluated can help reduce uncertainty and ensure you both share a clear understanding of what success looks like.”

The researchers have similar recommendations for employers: help your employees by clarifying expectations through regular feedback and performance conversations to reduce role ambiguity, as doing so can provide employees with a better understanding of role expectations and enhance mutual understanding of those standards.

The researchers also recommend that organizations should consider how employees and supervisors are paired, as mismatched expectations can increase stress, reduce job satisfaction and ultimately impact performance. 

The research, “The influence of employee-supervisor perfectionism (in)congruence on employees: a configurational approach,” is published in Organizational Behavior and Human Decision Processes

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Study shows scaling startups risk increasing gender gaps

Founders with HR‑related education counteract these challenges. In ventures led by founders with HR training, the odds of hiring a woman increase by more than 30 percent, and the odds of appointing a woman to a managerial role increase by 14 percent for the same level of scaling.  

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When startups scale quickly, founders often make hurried hiring decisions that unintentionally disadvantage women, according to new study from the Stockholm School of Economics in Sweden. The study shows how the pressures of rapid growth increase the likelihood that founders rely on mental shortcuts and make biased decisions. 

Drawing on large‑scale Swedish data, the study shows that scaling—when companies hire far more people than their usual growth trend would predict—puts pressure on founders to decide swiftly, which increases the use of mental shortcuts. These shortcuts can activate gender stereotypes, shaping who gets hired and who moves into managerial roles.  

“During those moments of rapid growth, even well‑intentioned leaders can fall back on familiar stereotypes when assessing who they believe is best suited for the role,” says Mohamed Genedy, co-author and Postdoctoral Fellow at the House of Innovation, Stockholm School of Economics. 

Reduced odds of hiring female managers 

His research analyzes more than 31,000 new ventures founded in Sweden between 2004 and 2018. It finds that in male‑led startups, scaling reduces the odds of hiring a woman by about 18 percent, and the odds of appointing a woman to a managerial position by 22 percent.  

These patterns emerge even in a highly gender‑equal national context, making the findings especially noteworthy.  

Crucially, the study reveals that founders with HR‑related education counteract these challenges. In ventures led by founders with HR training, the odds of hiring a woman increase by more than 30 percent, and the odds of appointing a woman to a managerial role increase by 14 percent for the same level of scaling.  

“When founders have experience with structured hiring practices, the gender gaps shrink, and in some cases even reverse,” Genedy says.  

“This shows that getting the basics of HR right early on really pays off. When things start moving fast, founders with HR knowledge are less likely to rely on biased instincts and more likely to hire from a broader talent pool.”  

Prior experience in companies with established HR practices also helps, though less so. It raises the likelihood of hiring women as the new ventures scale, but does not significantly affect managerial appointments. 

Differences persist in female-led ventures 

The study additionally shows that these patterns are not driven by founder gender alone. Even solo female‑led ventures display similar tendencies when scaling, though to a somewhat lesser degree.  

And in female‑dominated industries, scaling increases the hiring of women for regular roles but still reduces the likelihood that women are appointed into managerial positions.  

“When scaling accelerates, cognitive bias kicks in for everyone,” says Mohamed Genedy. “Female founders are not immune to these patterns.”  

Together, these results point to underlying cognitive mechanisms that shape decisions under time pressure.

The study, Scaling with Bias? The role of founders’ HR knowledge and experience in hiring and managerial appointments, was published in Human Resource Management.

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