B.A. – Before Amazon – free shipping was a relatively rare commodity. However, today’s consumers expect free shipping to be the norm. This leaves marketers wondering if they have to offer free shipping or if charging for shipping will drive consumers away.
Free shipping is critical to the consumer’s purchase decision. 90% of customers say free shipping is their top incentive when shopping online, according to Marketing Land. Moreover, Channel Advisor research shows that 60% of consumers say they make buying decisions based on delivery options.
Although it sounds like offering free shipping is a necessary evil, marketers must always weigh the costs. Yes, free shipping can increase conversions, but it will also drive down margins, as the marketer must burden the cost. On the flip side, not offering it can drive impulse buys away. It’s not worth offering free shipping unless marketers can improve their overall profitability. Brands need to test offers, explore scenarios and weigh other factors to help them choose the right “free” shipping model for their most profitable offer.
How to Approach Free Shipping?
The truth is, there is no right way to approach free shipping. Different brands use different approaches based on what works for them. Exploring or testing different shipping scenarios can help brands understand which free shipping practice makes sense for them.
This isn’t a new concept in advertising. John Caples covered the concept thoroughly in his classic book, Tested Advertising Methods. Caples cites a late nineteenth-century example: a product for 10 cents with $1 shipping vastly outperformed an offer for the same product at $1 with ten cents shipping. Apparently, nobody cared about the shipping cost in the 1890s. Or the massive perceived value difference outweighed the shipping fee. That’s no longer the case for consumers today.
Here are a few proven free shipping models that brands can test with their audiences.
Free Shipping No Matter the Order Size
Free, fast shipping has become one of the most powerful differentiators for eCommerce. Amazon opened the floodgates to free shipping so much that consumers now consider it the norm. Amazon Prime customers get free two-day shipping on any order (with Amazon brilliantly incorporating some of the shipping burdens into a monthly Prime fee). Regular Amazon shoppers get free shipping for sales above a certain threshold. This has proven so powerful that it has forced other retailers to match.
Free Shipping Above a Sales Threshold
Other retailers set thresholds for minimum sales to qualify for free shipping. For example, Target and Best Buy customers need to spend $35 to get free shipping. Home Depot requires $45 before shipping becomes free. Sellers with brick-and-mortar stores will often offer free pickup or ship-to-store at no cost if the item is not readily available.
Some sellers will also offer coupon codes for free shipping to stimulate sales.
Free Slow Shipping, Paid Expedited Shipping
Another tactic that eCommerce sites use is offering free shipping for select items and offering expedited shipping at an additional charge. For example, if customers aren’t Amazon Prime members, they can select free shipping on certain things if they are willing to wait 7-10 days for delivery. Two-day shipping becomes an option at an additional fee.
How Can Brands Determine the Price Points for Free Shipping?
For marketers, it comes down to cost versus benefit. It’s easier to offer free shipping on something small and light or something that sells at a higher manufacturer’s suggested retail price (MSRP). However, selling a $10 item that costs $5 at wholesale and $5 to ship does not make sense.
The marketing firm, Parts and Sum found that nearly every marketer they analyzed offered a path to free shipping. Marketers that sell products above $150 generally offer free shipping, and so do most subscription models that use shipping as an incentive for customer retention.
Most online sellers set a minimum dollar value to qualify for free shipping. This typically encourages higher ticket value and can save the marketer on shipping costs as items are bundled together.
Other marketers have tried these approaches:
⦁ Free shipping on the first purchase to encourage impulse buying or product sampling, hoping to make up any shipping cost loss by lower customer acquisition costs from repeat purchases
⦁ Offering free shipping as an email follow-up to abandoned carts
⦁ Rather than offering sales and potentially establishing lower price points, some retailers turn on free shipping as a limited-time incentive
How Direct Response TV Advertisers Use Free Shipping
Consumers can’t turn on the TV without seeing ads for DRTV advertisem*nts such as Purple, Peloton, Untuckit, Warby Parker, or Chewy. These marketers have found success by utilizing the advantages of the broad reach of television and the minimal investment required for direct response ads.
As for free shipping, DRTV advertisers approach the shipping strategy differently and for different reasons.
Mattress seller Purple offers free shipping, free returns, and a 100-night trial. That’s a little easier to do in an industry with high markups and high price points and without the overhead of retail stores. In addition, they are doing everything possible to get consumers to impulse buy.
Peloton offers free delivery and home setup. The free delivery service is made up quickly as part of the monthly subscription fee that leads to recurring revenue. A large part of Peloton’s appeal is its on-demand and live fitness workouts.
Several DTC brands offer free shipping above a specific price point. Pet supply seller Chewy offers 1–3-day shipping on sales over $49. Untuckit offers free shipping at the $100 price point. Interestingly, a significant amount of Untuckit’s products sell at $99, requiring only a $1 additional purchase to qualify for free shipping, encouraging the purchase of multiple items.
Warby Parker not only ships glasses for free, but they’ll also send five pairs to test for free and pick up the cost for return shipping for the ones customers don’t want. Already a low-priced alternative to the local eye doctor, they build free shipping into their price and still offer lower prices.
How Do Brands Know if They Should Offer Free Shipping?
So, how do brands know if they should offer free shipping? And if so, what’s the right price point to make it profitable?
Data is a friend here. You should try a variety of offers to see which perform best. Neil Patel, a renowned digital marketing expert, suggests a four-step approach:
⦁ Establish a Baseline
Create offers with and without free shipping at the same price point and compare conversion rates
⦁ Create Thresholds
Offer free shipping at specific minimum order values and test for improvement in margins
⦁ Set Restrictions
Test offering free shipping only on select products with higher margins
⦁ Price Increases
Increase product prices to account for any losses incurred from providing free shipping and assess the impact on profitability
Is Free Shipping the Right Strategy?
Like so many other things in life, the answer depends.
It depends on the business model, product profit margins, and market share. Almost every business that offers free shipping makes it up one way or another. Whether it’s a slightly smaller margin on high-margin items, an incentive to attract first-time buyers, encouraging buyers to spend more, or signing buyers up for recurring revenue, free shipping is never really free. Either the customer is paying for it, or the marketer is.
The only real question is whether free shipping leads to revenue growth and higher net profits.
