David Bell, a marketing professor at the Wharton School observed that: "For whatever reason, a free shipping offer that saves a customer $6.99 is more appealing to many than a discount that cuts the purchase price by $10.” People are psychologically wired to love free stuff. "Buy 1, get 1 free" works better than "2 for the price of 1" or "50% off", for example. That is why the current eCommerce trend of free shipping, viewed as pesky by some retailers and financially impossible by others, continues to present opportunities for competitive differentiation; because customers love it.
Top retailers worldwide are heeding the call for free shipping by offering that perk with more transactions and one such that rings the bell is Amazon Prime. Anyone who pays $99 per year for Amazon Prime membership ($49 per year for students) gets free two-day shipping on more than 19 million items, streaming of 41,000 movies and TV episodes with prime Instant Video, and access to 475,000 books to borrow from the Kindle Owners’ Lending Library. Prime members can even share their two-day shipping benefits with up to four family members living in the same household. In the first quarter of 2014, 58% of eCommerce transactions in the U.S received free shipping as part of the order, according to a new study published by comScore. One year earlier, just 48% of transactions came with free shipping.
There's no doubt that retailers are clearly becoming savvier about what motivates Americans to make a purchase online.
Sixty-six percent of online shoppers say free shipping is "very important" to them when making a purchase online, according to a poll from the National Retail Federation. Despite this clear importance to shoppers, free shipping doesn’t work for all online retailers, at least when it’s truly free shipping across the board, meaning that merchants absorb 100% of the shipping and handling costs for all online purchases. But, while all-inclusive free shipping may not be an option for your eCommerce business, there may be ways to offer meaningful shipping deals that do work for your business. With this information in mind, let's look at the most common alternatives to the "free shipping" deal:
Flat Rate Shipping
If free shipping is not possible, keep the process simple by offering flat rate shipping. This avoids customers getting surprised with the shipping costs during the checkout process. The rate can be determined by the average shipping costs for your orders, recognizing that too high a rate will not improve sales. Normally keeping it under $10 will work best for you, such as a $9.95 rate for all orders.
Minimum Cart Value
This is the most well-known alternative to free shipping. Don’t offer it across the board – ask for a minimum order size. It’s how Amazon drove their early growth before introducing Amazon Prime. They had a minimum cart value of $35 before giving free shipping. And if you set the minimum cart value just right, you can even come out ahead.
Many online retailers have successfully developed free shipping via subscription model, where the repeat purchases per month through the subscription make up for the loss incurred by the retailers on free shipping. The marketing costs that would have gone into leading the user to make a repeat purchase is saved in a subscription model and plowed back into subsidizing shipping costs. JewelMint and JustFab are just two of the hundreds of eCommerce sites out there that are using the subscription model to offer free shipping.
Free shipping on specified products allows consumers to receive free shipping on a limited amount of products. For example, offer free shipping on your best-selling items or high-margin products. This type of promotion promotes higher sales activity, generates orders with larger grand totals and depletes excess inventory.
Build Shipping Cost into Product Cost
This one’s a double edged sword and should not be resorted to unless you have no options left. One of the largest benefits of eCommerce is the power in the users’ hands to compare prices of the same product across multiple sites at the click of a button. If you build in the cost of shipping into your initial listed price for the product, you are essentially setting the stage for the user to buy from a seemingly cheaper competitor who did not bundle shipping cost into product costs. However, this strategy would work with more mature online shoppers as they will see through the fact that shipping costs are additional on your competitors’ sites and will continue shopping with you.
If you cannot afford free shipping as a year long activity, at least offer free shipping during periods of low activity or during highly competitive periods like the end of the year holiday season. Promotional free shipping offers, lead to a minimum of 10-20% growth in sales during the offer period.
Free shipping is here to stay. Whether we like it or not, we need to figure out ways that suit our businesses best to offer free shipping if eCommerce is going to take over retail.