Chances are, if you’re reading this, you’ve probably shopped online. Which means you’ve experienced first hand that universal annoyance when an extra shipping fee magically appends itself to the price of that item you’re about to buy. Anyone who denies ever searching for “free shipping coupons” or adding random knick-knacks to their cart just to hit that “free shipping threshold”, is probably not being entirely honest.
Shoppers Love Free Shipping
Research backs up what you and I know instinctively. The Internet Retailer 2016 Marketplaces Survey asked online shoppers what they care about more – free shipping or fast Shipping. While 40% of shoppers wanted the best of both worlds (don’t we all!), close to 60% emphatically claimed free shipping was their #1 priority. A paltry 0.9% wanted their deliveries fast, not free.
So yes, consumers love free shipping.
Sellers, not so much. Most view it as a burden. Something that eats into their margins but must be done to keep up with competition. But is that all there is to it?
It is true that there are no free lunches. If you offer the shopper free shipping, you’ll likely end up picking up the tab for delivery instead of your customer. Why, in Q3 of 2016, Amazon, the big daddy of e-commerce, spent a net $1.74 billion on offering free shipping to its users.
Clearly, Amazon seems to have gotten the pulse of the online shopper just right. A recent study showed that free shipping was the biggest reason online shoppers signed up for Amazon’s incredibly popular Prime program. Prime shoppers are known to spend nearly double what non-Prime members spend annually. Prime membership now accounts for nearly half of all US households, and is growing steadily.
Who would’ve thought something as basic as free shipping could be the secret to building an ever-expanding e-commerce empire!
If world domination is not on your agenda right this minute, you would probably be interested in these other benefits that free shipping brings with it.
Free Shipping Reduces Shopping Cart Abandonment
E-commerce usability provider Baymard Institute estimates the average shopping cart abandonment rate at 68.8%. In other words, slightly fewer than a third of all people who proceed to the checkout page on your e-commerce site will actually end up making a purchase. What is it about the checkout process that turns off such a large chunk of shoppers?
Turns out, high shipping costs are by far the #1 reason why online shoppers abandon their carts.
With over 60% of users seeing shipping costs as an insurmountable hurdle to closing the deal, the most obvious solution would be to offer your shoppers lower shipping rates or, even better, offer them free shipping.
Why should you bother with cart abandoners? Because there’s more money in abandoned carts than in carts that actually converted.
We already know that e-commerce is a trillion-dollar industry. Data from 2013 confirms that global e-commerce revenues for the year stood at $1.22 trillion.
But did you know that the total value of lost sales due to abandoned carts was a whopping $4.2 Trillion? That’s over 3.5x the revenues retailers actually made online!
It’s time to stop leaving money in those abandoned shopping carts and work on getting those cart abandoners to stick around. If high shipping costs are their biggest grouse, fix it right now.
Free Shipping Increases Gross Merchandise Value (GMV), Order Volume and Average Order Value (AOV)
Free shipping is not just about bringing back (or preventing) lost sales. Sales that would have happened anyway can be padded significantly with the carrot of free shipping.
Visual Website Optimizer showcases cosmetics brand NuFace and their experience with offering free shipping on their website. As an experiment, NuFace offered shoppers free shipping for all products above a minimum order threshold. The results were conclusive. Order volumes exploded, and even the average value per order went up noticeably.
Order volumes grew by 90%, while AOV went up by 7.32%
The net of these two increases is that overall GMV – the value of merchandise sold – just about doubled!
It’s easy to look at free shipping as this additional burden that you’re now forced to tack on to all the other costs you’ve got to absorb anyway.
Smart retailers, however, realize that free shipping is just a means to an end—increased overall sales as a result of higher AOV, higher order volumes, greater customer satisfaction and the promise of higher profitability in the long run.
Offering Customers Free Shipping Can be Profitable
Yes, you read that right. Offering your shoppers free shipping can actually save you some money on shipping costs yourself. Let me break it down for you.
Data from ComScore shows that 83% of shoppers are willing to wait an additional two days (over and above the standard delivery promise) to be able to enjoy a free shipping offer.
This means, you can ship items via the cheapest shipping option available to you, and still capture the sale, as long as you offer free shipping. Tools like CommerceHub’s SmartShipping help you pick the most cost-effective mode of shipping based on the delivery promise you made to your customer. Check out this interesting story of how SmartShipping helped a large retailer save money on shipping costs and yet deliver their packages on time.
You might not end up picking the fastest way to ship products to your customer, but it doesn’t matter anymore when your customers are ready to wait an extra couple of days to enjoy a free shipping offer.
There’s a win-win for you!
7 Tried and Tested Strategies to Offer Free Shipping
We’ve seen the different ways free shipping helps lure shoppers to your store, convert them more often and keep them coming back for more. But the question remains: how do you achieve the best of both worlds, offering free shipping without letting your profitability take a hit?
1. Absorb Shipping Costs into Product Pricing
The most straightforward way of offering free shipping with your online purchases is to become a little creative with your product’s pricing. By including the cost of shipping into the product’s price, you fulfill the need for free shipping and cover your costs at the same time.
However, this approach works best for unique products that don’t have to compete in a price-driven market. If your product is a me-too that is sold by lots of competitors, this is probably not the best strategy for you.
2. Offer Free Shipping on Select Items
Nobody said you need to offer free shipping on all products in your catalog. How about picking products that have higher margins than the rest and offering free shipping on those? You could even create special promotional messages that highlight the free shipping offer on such products. The free shipping offer would help catch shoppers’ attention, increasing your order volumes. The fact that the promotion is centered on high margin products makes covering shipping costs on those products is a lot easier.
3. Set Minimum Order Thresholds
Minimum order thresholds are an extremely popular strategy used by a majority of online retailers, which offer retailers and online shoppers a mutually satisfactory option. A recent UPS study shows that 93% of shoppers will take the required action to qualify for free shipping. More than half the time the “required action” means adding more items to their cart. More items = more revenue. So go ahead and give your shoppers free shipping, with strings attached.
4. Establish Free Shipping Periods – Holiday Season and More
It’s not unusual to see free shipping promotional periods across the year. The most common free shipping promotions, though, happen during the Q4 holiday season. This makes sense, as this period also sees the most e-commerce action compared to other parts of the year. Online shoppers spent 21.5% more on Free Shipping Day in 2015, with revenues of $1.48 Billion in the US alone.
5. Promote ‘Buy Online, Pickup In Store’ Offers
Buy Online, Pickup In Store has taken off in the last couple of years. As brick and mortar retailers realize that their stores can double as e-commerce warehouses for their online audience, there’s been no stopping the spread of this omnichannel juggernaut. “BOPIS”, as it’s often called, overcomes two important weaknesses that have held back e-commerce growth: shipping costs and the wait time between placing an order and receiving it at your doorstep. No wonder 57% of US online shoppers have already used the BOPIS delivery option.
As you’ll notice in the graphic above, close to 50% of shoppers who chose the BOPIS option also shopped for more items while in store. Who wants to say “no” to savings on delivery costs and incremental in-store purchases?
6. Create a Shipping Membership Program
Take a page from Amazon’s Prime playbook and consider launching Shipping Membership programs that offer shoppers free shipping with a creative twist. By pre-paying for their shipping costs for a whole year in advance, shoppers have an incentive to make multiple purchases from you.
Data from Amazon Prime is proof of how well this strategy has worked for both sellers and shoppers. Prime members shop more often and account for almost double the spends as compared to non-members. From the shoppers’ perspective, not only do they get “free shipping” with Prime, they also enjoy the benefit of faster deliveries. It would be interesting to see how Walmart’s new “Shipping Pass” program performs to encourage other online retailers into taking the plunge as well.
7. Offer Free, But Slower, Shipping
If you’ve been in the online retail business for long, you probably enjoy special shipping rates with the leading national carriers. Leverage your relationships to promise your customers free shipping and ship items on the lowest rates you’re able to negotiate.
A UPS study shows that 85% of online shoppers will wait for 5 days or more for delivery if they’re promised free shipping is an encouraging sign supporting this strategy.
Repeat to Yourself, “Free Shipping Can Be Awesome for Retailers”
Clearly, free shipping offers are highly prized by online shoppers. But as we’ve seen above, free shipping can be great for retailers and brands too.
Beyond capturing the sale at hand, free shipping comes with the additional benefits of higher value orders, larger order volumes and better competitiveness in a crowded market. More importantly, by giving shoppers what they want, you’re sowing the first seeds of brand preference and loyalty, thus paving the way for repeat purchases and a long-term relationship.
So, is free shipping the silver bullet to all your woes? Probably not. Is it a helpful strategy that’ll augment your business growth? Inarguably. Reach out to our team of experts to help you set up a winning delivery program for your e-commerce store.