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Free Shipping: Friend or Foe?

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This is a guest post from Katie Francfort, Senior Retail Marketing Manager at UPS.

At UPS, the question our customers constantly ask is, “How can I offer free shipping?”  It is a smart thing to ask. According to UPS’s Pulse of the Online Shopper Study, 74% of online shoppers in the U.S. say free shipping is important, so naturally, retailers believe that offering free shipping all the time will drive sales.

This may be true in some cases, especially if you sell a product that can be purchased on multiple competitor websites. However, many business owners who sell a unique product often automatically assume they need to offer free shipping all the time to go along with the trend.  What is frequently overlooked is that since free shipping carries a lot of weight with consumers, it can actually be a very powerful marketing tool.

In other words, why give shipping away for free, when you can use it as a pawn to get something that benefits you, too?

Retailers spend a good portion of their time focusing on two overarching consumer behaviors (1) Getting more consumers to buy (increase your conversion rate) and (2) Getting consumers to buy more (increase your average order value or a customer’s lifetime value).  Let’s take a look at how you can use your shipping strategy to impact these two areas.

Getting More Consumers to Buy

Highlighting free shipping in your digital marketing campaigns is one way to get more consumers to hit “submit” on their orders.  From a conversion standpoint, according to MarketingLand, the most effective email offers entice shoppers with a percentage off (7.9 percent conversion) and free shipping (7.6 percent conversion), compared to BOGO, loyalty incentives, free gift and no offers..  This is because they are most relevant to subscribers who are ready to purchase.

On the paid search side, shoppers are getting smarter about price shopping the total cost of their order and retailers are getting smarter about advertising their free shipping promotions in paid search ads.  In fact, new research from NetElixir indicates that in most industries placing the phrase “Free Shipping” in paid search text ads yields a higher click-through-rate than “Fast Shipping”, but when looking at conversion rates, “Fast Shipping” tended to prevail with a conversion rate of 14.5 percent versus 2.6 percent with “Free Shipping”.

That’s why it’s so important to offer multiple shipping options on your website.  Since roughly one-third of all online shopping orders start on marketplaces and those marketplaces typically offer aggressive two- day shipping policies, consumer expectations and actions have changed.  In fact, UPS research shows that the percentage of online consumers who select two-day shipping “most often” has doubled over the past three years reaching 23 percent.  Not offering faster shipping options, even if the customer has to pay for it themselves, is a sure way to lose sales to competitors.

Additional research from Temando confirmed this with their findings that 43 percent of retailers drove increased revenue by offering more shipping choices in ecommerce delivery.  Among enterprise retailers, 33 percent reported a reduction in cart abandonment rate when offering more shipping options, while 50 percent of mid-market retailers experienced increased sales.

Another strategy that helps retailers increase conversion is showing the expected date of delivery in the shopping cart versus a range of days, or even worse, a vaguely named service level like “Standard Ground” or “Economy”.  Put yourself in your customer’s shoes:  If what they want to know is whether their package will arrive in time for their child’s birthday, “Economy” doesn’t provide that answer.  Putting the expected delivery date removes this anxiety and gives consumers the confidence to complete the purchase.  Remember, many consumers are less concerned about how long it will take, and more concerned with simply knowing how long it will take.

Getting Consumers to Buy More

One commonly used tactic that many retailers use is a free shipping threshold.  The great thing about this strategy is that you can set it at a specific value so that your total order size provides you with enough margin to cover shipping.

You can also experiment with increasing your threshold to grow your average order value.  UPS research shows that 57 percent of shoppers add items to their cart to qualify for free shipping.  Additionally, Temando research showed that 65 percent would increase the size of their order to qualify for free premium shipping, so this is a great way to get customers to add one or two more items to their cart.

Going the extra mile, including a free shipping countdown calculation in your cart (such as “Add $23.45 to get free shipping!”) can also help to drive your customers over the threshold.  If you decide to go with this strategy, make sure that your free shipping threshold amount is prominently displayed not only on your home page, but also throughout your shopping cart.  The worst time to lose a customer is when you already have them close to the finish line!

Now, what if we take the concept of free shipping thresholds a little further?  Most retailers use free shipping thresholds for a sale that lasts a specific period of time.  For example, “Free shipping on all orders over $100 until Sunday.”  But what if instead of setting the threshold at reaching a certain dollar amount or a time period, you tie it into your product mix strategy?

Think about it.  You likely have a product line that has higher margins than others, or a new line that you want your existing customers to try.   Maybe you even have a “gateway product” that you want to push where customers buy more overall after purchasing this specific type of item. Try offering free shipping only with the purchase of something from these specific product lines.  It can help to improve your overall margins by guiding your customers towards the behaviors you desire and help you get your customers to expand into new product lines.

Remember, you can always limit these types of discounts to specific groups of customers or countries to limit cutting into your margins too much.

Another thing to consider is a loyalty program that includes free shipping as a benefit to your customers who reach a certain lifetime value threshold.  You can start with free standard shipping or even offer free premium shipping to your most loyal customers.

Of course, free shipping discounts aren’t the answer for every online business and only you can decide what strategy is best for your company.  As with any changes to your strategy or website, you should always test the outcomes first by running A/B testing to see which changes are most impactful and tweak as you go.  Keep in mind that your shipping strategy will change over time as your business grows and matures.

However, the next time you are thinking about how to drive consumer behavior, don’t overlook the power that shipping has on purchasing decisions.  The sooner you stop looking at shipping as an expense and start looking at it as a marketing tool, the better off you’ll be!

NetElixir is a proud partner in the UPS Customer Technology Program. Learn more about our resources for UPS customers here.