While free shipping was originally a marketing promotion used by large online resellers, many merchants now view it as an inevitable cost of business. But digital merchants shouldn’t feel pressured to always offer free shipping. An insightful look into the data shows that other options may be better for your bottom line—and for building lasting relationships with customers.
As the holiday season approaches, online retailers are gearing up to push revenues to historic levels. One of the tactics that always garners a lot of attention is offering free shipping on purchases. While at first blush the data might suggest shoppers have come to demand free shipping, a more nuanced examination into customer motivations suggests that other options might make more strategic and financial sense.
There is no question that shipping costs are an important consideration for online consumers. In fact, on Dec. 18 this year, we will celebrate Free Shipping Day – actually turning free shipping into a shopping event. Based on industry research and experience working with thousands of online merchants, we know that shipping costs can be one of the drivers behind purchasing decisions as well as one of the primary reasons for cart abandonment. So how should merchants think about free shipping this holiday season?
No Such Thing as a Free Lunch
It’s instructive to dig a little deeper into the so-called free shipping offers some merchants provide. Often it’s not truly free; sometimes it’s merely discounted. Other merchants require customers to reach a certain price threshold in their shopping cart before they’ll offer free shipping. Still others offer free shipping to the customer, but then require the customer to pay for the shipment of returns. Before making the full leap to free shipping, merchants should weigh the options that best promote their products and their brand.
Communicate Early in the Shopping Process
Take a careful look at what your customers actually want. Shoppers fully expect to see a next-day delivery option, but rarely do they make use of it. Customers will often default to a less expensive option even if that means they have to wait a longer period of time for their purchase to arrive. For example, in the US, customers are willing to wait an average of seven days for their purchase to arrive. And yet, there may be times of the year—like the holidays—when customers are willing to pay a premium to ensure their purchases arrive by a certain date. Clearly, customers want options, and they want them early in the process so they can factor the cost into their purchase price. That, rather than offering free shipping across the board, is likely to keep your customers happy.
Test Different Tactics
A few years ago, online merchants might have had no good reason not to jump on the free-shipping bandwagon. Now, we have access to the analytics that allow merchants to assess shoppers’ behaviors and intentions in an intelligent manner. Maybe you can use free shipping to differentiate your offerings—but you can and should take advantage of analytics to assess exactly how and when it makes sense to do so. Rather than just deciding to offer free shipping because it’s a standard marketing technique, smart merchants test different combinations to find that perfect balance between conversion rate and profitability. Actual testing and thoughtful analysis is the best approach to any digital commerce strategy.
Consider Your Options
Here are some tactics to think about as you contemplate the right strategy for shipping.
- Make the free option the least expensive for your company. For example, you might only offer free ground shipping; air freight would be cost prohibitive.
- Offer free shipping only on products that are inexpensive to ship. For example, you might not offer free shipping on a 54-inch TV, but for a computer mouse you might.
- Discount your shipping, but don’t make it free. You might set a threshold of, say, $35, and offer half-off shipping for orders above that amount.
- Make free shipping a promotion. Offer it for select events or specific holiday periods, and when you do offer it, give the promotion prominent placement throughout your site.
- Use free shipping as the carrot to get back shopping-cart abandoners. If someone does abandon their cart, send them an email offering free shipping if they complete their purchase within 48 hours.
In trying to keep pace with your competitors, guard against a decision that might not yield the results you hoped for. Evaluate, calculate and adjust until you get to the optimal place with your shipping strategy. It will allow you to move forward with your decision secure in the knowledge that you are making the best decision for your customers—and your bottom line.
Alex Becker is Global Vice President, Branded Manufacturers for Digital River.