Free Shipping Versus Discount: There Is No Easy Answer
There has been quite a bit of research over time suggesting that an offer of free shipping converts better than an offer of a discount.
For example, In 2007 Forrester Research determined that 61% of online shoppers prefer to shop with a retailer that offers free shipping than one that does not and 43% of shoppers abandon their shopping carts because of unexpectedly high shipping charges (according to PayPal and ComScore in a 2008 study).
Interestingly, some of the research suggests that free shipping wins out over a discount even when the customer would save more money through a discount. Some researchers have theorised that getting rid of the shipping cost essentially levels the playing field between online and bricks and mortar shopping, psychologically freeing the consumer to buy.
How do you actually manage free shipping?
Talking about the advantages of free shipping is different than actually figuring out how to accommodate a very real cost.
Increase purchase price
Some retailers add the shipping cost to the purchase price so that they do not have to assume the cost. But others fear that comparison shoppers will decide against a product with a price that is been inflated by shipping and never even consider the issue of free shipping.
Others have tried the bundling technique where they quote the price as including shipping and handling. Once again, there is significant concern that the bundled price is still going to drive away customers who are not willing to do the math.
The other problem with adding the shipping to the price is the problem of returns. If a customer returns an item, you need to return the cost of the product plus the shipping cost so you end up paying twice.
Shipping Cost Equals Marketing Budget
Some retailers eat the cost of shipping, considering it to be a major part of their marketing strategy. That makes some sense though you still need a marketing budget that is sufficient to get the word out that you offer free shipping.
Alternatives to Free Shipping
If free shipping is not possible, here are some alternatives to consider.
Intelligent Shipping
Some retailers use a concept known as intelligent shipping. This methodology charges shipping differently based upon customer information such as amount of purchase, geographic location, customer loyalty and so on.
Free shipping over a minimum dollar amount
You can offer free shipping over $50 or over $100 or whatever makes sense in your setting. It is worthwhile to try different levels and see what works. If you find that there is no appreciable difference in rate of purchase at a $60 free shipping floor versus and $100 floor, stay with the higher number.
Flat rate shipping
This is a lose some win some hope it evens out strategy.
Increase shipping over time
Start at a low rate, slowly increase until you begin to get complaints or see an increase in shipping cart abandonment when shipping price is calculated.
Testing to Find an Answer
It seems that the issue of how to handle shipping may truly vary from business to business or from customer to customer. The best strategy is to test options within your marketplace and use the data to drive your decision making.
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