Why should e-commerce retailers have free shipping offer?
November 5, 2021
12072 minute read
Free shipping offer!
Customers appreciate seeing those two words on an online store and its products. It’s a perk for them to finish a pending purchase process. They are ecstatic because they have one less thing to pay for.
Is free shipping, however, beneficial to your eCommerce business? Is it profitable, and do you see an increase in sales?
The answers to both questions are dependent on a number of factors. In this section, we’ll look at:
- What it means to offer free shipping.
- How to increase sales as a result of it.
- How you’re going to pay for it.
- When to offer it.
Is it better to have a free shipping offer?
The free shipping offer is a marketing strategy that eliminates shipping costs for approved purchases. That is the most basic definition.
However, there are a variety of options to consider, including free shipping:
- There are no restrictions or qualifications required.
- When a certain amount of money is reached.
- Only for members of a club or community.
- For specific items.
- Promotions that run for a limited time.
- Directly sent to a physical store.
- And there are numerous other combinations that eCommerce professionals can think of.
Customers prefer this eCommerce method because of the psychological benefits it provides.
Including free, quick delivery (next day or two working days) alleviates these concerns and makes your site and impulse purchases more appealing. However, there are numerous reasons why any eCommerce company should provide free shipping.
Increased sales – Simply put, free shipping can boost sales. It not only leads to a decrease in cart abandonment, but it also leads to an increase in sales. This is difficult to demonstrate with research: it appears that no one has researched the fact that consumers will use something more if it is free than if they have to pay.
Increased ARPU – Free shipping increases average revenue per user (ARPU). One free shipping strategy revolves around offering free shipping on orders over a certain amount, as we will see shortly. This frequently leads to shoppers adding items to their cart in order to exceed the limit and qualify for free shipping.
Increasing loyalty – Another benefit of free shipping is increased loyalty. Free shipping – whether as an option, above a certain cart value, or as part of a loyalty or membership program – drives customers back to the retailer.
Again, as we will see shortly, a free shipping offer as part of a membership scheme increases brand loyalty by attracting shoppers who are willing to sign up – so you can collect data on them – and even pay to get ‘free’ shipping and next day delivery on goods. This not only provides you with valuable data and insight into what they do, but it also encourages them to return for more.
The psychology of everything
To be effective, free shipping must be applied at the appropriate point in the purchasing cycle. Every online shopper is at one of the following points:
- Realization: understanding that they must satisfy an emotion or a need by making a purchase.
- Interest: I’m curious to see how your product meets their needs.
- Knowledge: gaining a better understanding of the benefits and features of your product.
- Decision: After weighing their options, they decide on their favorite product to meet their needs.
- Buy: completing the transaction and becoming a return customer.
The free shipping technique adds value to a customer at the fifth stage of the cycle, ‘Buy.’ Once they’ve decided to buy, you can eliminate the risk by using the term ‘free.’ However, if they aren’t there yet and aren’t completely sold on your product, free shipping will do little to persuade them. This is why:
- If a potential customer is still in the realization stage, they are still determining what their need is. Free shipping will not entice them if they are undecided about whether or not to shop.
- They are still weighing their options if they are in the interest or knowledge stages. They will not buy something they are unsure about just because it comes with free shipping. That would be careless.
- If they are at the decision stage, they can choose to buy the best product available at the time, regardless of whether or not it includes free shipping. This will increase their trust in their decision. The fact that free shipping is available is an added bonus that makes them feel good.
Customers may need to go through each stage of the cycle and be in the market to buy. And there is no better time of year for them to get into the shopping mood than during the holiday season.
How to include a free shipping offer?
So, how do you go about making free delivery a reality? While paying for it is the obvious question (which we will address shortly), what types of free shipping you should offer is an important question – both from a practical and a profit standpoint.
Here are some of the key ways you can offer free shipping, along with some of their benefits and disadvantages.
Free shipping on all orders – Some retailers will provide free shipping on all orders. This is commonly found on expensive but small items such as jewelry, as well as on small inexpensive items. However, there are usually restrictions, such as in-country only and delivery may not be the quickest way to obtain the goods. The benefits are that it simplifies shipping options for the user and gives them the impression that they are getting something for nothing. On the negative side, it is a cost that the retailer must bear.
Free on some items – Retailers who sell a variety of goods frequently choose free shipping on high margin items where the shipping costs can be offset by the margin. Again, this frequently applies to small, either high or low-value items, and it usually only works with slow delivery.
Free shipping above a certain threshold – As we have seen, some retailers choose to include free shipping on orders or baskets that exceed a certain threshold value. This has the advantage of encouraging upselling to tip a basket over the threshold, and the cost can be covered by incrementally building the cost of shipping into all goods.
Free shipping during certain times of the year – One shipping strategy is to offer free shipping during certain times of the year, such as around holidays. For example, because Black Friday and Cyber Monday are the busiest shopping days, there may be more free shipping available. However, this can be problematic because margins are already extremely tight in such a competitive environment. It is more effective to use a holiday, such as Valentine’s Day or Mother’s Day, to encourage early sales by offering free shipping if orders are placed before a certain date.
Member and loyalty programs – As previously stated, free shipping can be included as a perk for customers who sign up for or join a membership or loyalty program. While this can be done for free (the value is in the data you obtain and the repeat business you should generate), many retailers are considering charging a small annual fee to ‘join’ and then using that to offer not only free delivery but also free next-day delivery. ASOS, a fashion retailer, has done this successfully.
Paying for free delivery
There is no such thing as a free lunch, so the big question here is how you pay for it. As we’ve seen, offering free shipping on a high margin can cover the costs by simply using some of that margin to cover the delivery costs. However, for the vast majority of items, this simply does not work. So, what are the alternatives?
Bake the cost of delivery into the price – The simplest solution is to slightly raise all of your prices and use the increased profit to cover the cost of free shipping. Offering free shipping across the board with the cost baked in is a cost-effective way to cover shipping costs. However, in such a competitive market as online retail, while the price is no longer the primary area of competition, it is still the primary decision point for most shoppers. They may base their purchasing decision on shipping costs, but you are only in the running if your price is the same as others. It can also include, as part of this, free next-day delivery on goods and items. This covers the costs of delivery in direct terms, but it also gives access to consumer data that can also be monetized through either more targeted, personalized marketing or by selling data.
With the race to the bottom on price completed, it is clear that delivery is the new battleground. However, free delivery must be considered in terms of the economics of the value and perceived value of your product versus the value of ensuring the sale. While the cost of free shipping can be built into the price, free delivery is increasingly becoming associated with personalization and marketing, as well as loyalty and membership.
While free shipping appears simple on the surface – free shipping = more sales – it is actually part of a shift for retailers toward a more complex, personalized, and loyalty-driven strategy.
Free shipping is an effective way of increasing your sales because shoppers love it. They see an added bonus through which they can save money when it’s time to buy. However, it only works for you in the right circumstances.
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