Free shipping is one of the most hotly contested subjects in the eCommerce world, some claim that free shipping is the way to go, that it is a massive driver of conversion and sales, others would rather have a lower upfront price but a decent shipping charge to cover the loss in margin.
Unlike the offline world the cost of shipping is usually taken into account by the shopper in the combined cost of the product. In the offline world, how many shoppers will take into account the cost of their fuel, their time, their parking cost etc when weighing up the cost of a purchase? Not many, that’s for sure.
The most graphic illustration of the power of shipping charges can be seen on the marketplaces like Amazon and eBay. On Amazon, marketplace sellers are ranked on their combined price, that is the combined total of the product price and the shipping price. When there is a single product purchase a higher price with free shipping can be an advantage, anything free, as has been shown in many studies, will outperform any other type of offer, we are just suckers for anything free and that includes shipping. However if you want to buy multiple items, a shipping cost that has a base price and a small increment for each additional item will appeal to the more savvy internet shopper.
Whilst intuitively we know the overall price is the same, there is still a powerful motivator to go for the free offer. On eBay, listing with free shipping get greater exposure on the search results because it better matches the search algorithm’s “best shipping cost” parameter.
Amazon, a company famous for testing its offerings, must think that free shipping is a strong motivator for driving sales, they were one of the first online retailers to introduce free shipping on orders over a certain amount. Today they are leaders in free shipping, in fact with their massive buying power they are able to offer free shipping on everything. Whilst it will cost them on the shipping element, the economy option enables them to prioritise orders and maximise the efficiency of their overall operation.
Zappos is a great example of a company that has grown past the Billion Dollar level by leveraging free shipping and free returns. This takes away the risk of buying shoes online and also gets them a large number of repeat loyal buyers.
In the run up to Christmas we ran a little test on a site and offered two weekends of free shipping. Now the strange thing is, that many mailing list members already enjoyed free shipping, everyone on the mailing list was emailed the offers and it was widely promoted on the site. There were two powerful motivators in play here, firstly the free shipping offer itself, plus the time limited offer which encourages shoppers to make that purchase.
The results were outstanding. Not only did the revenue line jump significantly for those weekends (weekends being a traditionally slow time for this site) but the conversion rates soared, one day saw a conversion rate of nearly 8%. Now there aren’t many general eCommerce sites that enjoy conversion rates of 8%.
The chart on the right illustrates the two weekends that the free shipping offer ran. It isn’t hard to see where those weekends were.
The key thing here is to test different shipping strategies:
- Low price items with higher cost shipping
- Higher priced items with free shippping
- Strategic free shipping periods
- Different price bands of shipping and service
- Different levels of free shipping price breaks
I’m a big fan of free shipping, as both an eCommerce operator and as a consumer. However, you have to make it pay, in order to make free shipping work for you, you must have the margins to support it. Losing money on shipping and fulfilment is one of the easiest ways to lose money from your bottom line.
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