Using Free Shipping to Compete with Big Box Retailers

Nov 16, 2012 7:56 PM  By

The holidays can be the most wonderful time of the year for retailers of all sizes and specialties. With gift purchases representing more than 47% of total holiday sales and with as much as 40% of annual sales occurring in the last two months of the year for some businesses, the holidays are a huge sales opportunity for small and mid-sized retailers, but they need to ensure that they are prepared to compete with big box stores.

Free shipping is a great way for small retailers to attract new and repeat customers, and ensure that they enjoy strong sales during the holidays and throughout the year.

A recent report by Forrester Research found that, while holiday spending is rebounding from previous years, 56% of consumers are more cost-conscious now than they were last holiday season. The report found that these consumers will be looking for ways to save money through exclusive offers and Free Shipping.

Research shows that there is a clear correlation between consumers’ use of Free Shipping and both the dollars spent per order and the overall growth in online spending versus last year. When retailers offered free shipping deals during the holiday season, each week saw average order values climb significantly and positive spending growth versus a year ago.

But when some retailers pulled back on free shipping deals, average order values declined and they experienced negative growth versus a year ago.

Offering free shipping and discounted deals for the holidays also seems to combat the growing issue of shopping cart abandonment, as it encourages customers to complete their online purchases.

Many small retailers have implemented successful Free Shipping strategies to improve sales. For example, online luxury bedding provider ShopBedding.com offered a random free shipping day that was not advertised on their site but sent only to email subscribers.

This strategy promoted customer loyalty and encouraged shoppers to buy from ShopBedding.com rather than its larger competitors. Aaron Parnes, marketing manager at ShopBedding.com, said the promotion was “wildly successful.”

Small retailers looking to offer Free Shipping for the first time should be careful to make sure there is a minimum purchase required. Consumers are trained to expect Free Shipping online but this can quickly erode a small business’ profits. Making Free Shipping dependent on a minimum purchase amount ensures that your customers’ overall order size increases.

A great first step in offering free shipping is joining the more than 1,000 merchants participating in Free Shipping Day 2012, taking place December 17.

In addition to free shipping, other incentive options that small businesses should consider include offering online coupons or partnering with a vendor to provide third-party authentication of your site.

The best advice for capitalizing on holiday sales and competing with big retailers is to be prepared. If you develop a solid free shipping strategy in advance of the holidays, it really can be the most wonderful time of the year!

Fred Lizza is the chief executive officer at Dydacomp.