The rampant offers of free S&H have gotten out of hand, according to several merchants, and they’re hurting the industry? One multititle company that tests free S&H regularly tells F. Curtis Barry & Co. why:
“On titles with a very low outbound shipping cost and high variable contribution margin, we can sometimes make free S&H work.
I don’t think most mailers understand how to analyze the results using the appropriate break-even costs. It works best to your high sales per thousand (SPM) segments, since the needed percent lift is much lower. We see many people using free shipping to prospect or reactivate, but this is very tough, because the needed lift could be in excess of 30%.
The problem comes when you isolate these customers and look at their downstream ordering when they are not given free shipping. It’s definitely weaker, so they are worth less to us.
In addition, we typically see a falloff in the lift with each subsequent time we make the offer. We always back-test. We also test with varying dollar hurdles (the higher minimum order requires a lower percent lift to break even).
Bottom line is that it’s tough to make work, and we are currently not running any free offers in a rollout mode. We would probably all be better off in the industry if no one offered it.”–Curt Barry