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Free Shipping Can Feel Like an Imperative, But It’s Not

By: Alex Becker

With the holiday season in full swing, free shipping promotions are practically everywhere it seems. And they should be during the holidays when online brands are in the thick of their heaviest promotions. But what about the rest of the year? Are you planning to offer free shipping out of a “me-too” mentality because you believe your peers and competitors do, or are you taking a more measured approach to complimentary offers? Rather than coast through the year end, now is a good time to re-evaluate your shipping strategy to ensure it meets the goals of your business all year long.

While free shipping was originally an occasional marketing promotion used by online retailers, many now view it as an inevitable cost of doing business. But digital merchants shouldn’t feel pressured to jump on the free shipping bandwagon.

Before sharing some points to consider for making your shipping strategy work for your bottom line, let’s first take an instructive look into the so-called free shipping some retailers offer. Often it’s not truly free; sometimes it’s only discounted. Other retailers require customers to reach a certain price threshold in their shopping cart before they’ll ship for free. Still others offer free shipping to the customer, but then require the customer to pay for returns. And companies that don’t include shipping as an extra charge in the shopping cart bake the price of shipping into the cost of the product, potentially making the initial price customers see when they’re comparison shopping online higher than that of competitors.

A few years ago, online merchants might have had no good reason not to jump on the free-shipping bandwagon. Now, we have the analytics that allow merchants to assess shoppers’ behaviors and intentions in an intelligent manner. Maybe you can use free shipping to differentiate your offerings—but you can and should take advantage of the data at your disposal to assess exactly how and when it makes sense to do so. Rather than just deciding to offer free shipping because that’s what everyone else seems to be doing, smart retailers test different combinations to find a perfect balance of conversion rate and margin. We can’t stress it enough: actual testing and thoughtful analysis is the best approach to any digital commerce decision.

If you do decide to offer free shipping, one of the biggest considerations is returns. You might offer the original fulfillment sent to the customer at no cost, but what if they return it? Will your returns rate increase if you offer free returns shipping? What are the potential inbound costs of shipping? It’s important to understand there’s a break-even point, and you may need to adjust your threshold to find it.

Here are some other tactics to think about as you contemplate whether to offer some kind of free shipping option:

  • Make the free option the least expensive for your company. For example, you might only offer free ground shipping; air freight would be too expensive to make sense.
  • Offer free shipping only on products that are inexpensive to ship. For example, you might not offer free shipping on a 54-inch TV, but for a computer mouse you would.
  • Discount your shipping, but don’t make it free. You might set a threshold of, say, $35, and offer half-off shipping for orders above that amount.
  • Make free shipping a promotion. Offer it around events or holidays, and when you do offer it, give the promotion a prominent banner on the homepage.
  • Use free shipping as the carrot to get draw shopping-cart abandoners back to your online store. If someone does abandon their cart, send them an email saying that if they complete their purchase within 48 hours, they’ll get free shipping.

In trying to keep pace with your competitors—to say nothing of behemoths like Amazon—guard against a decision that might not yield the results you hoped for. Using analytics tools to calculate and adjust until you get to the right place with your shipping costs will allow you to move forward with your decision secure in the knowledge that you are making the best decision for your customers—and your bottom line.

Alex Becker is the Global Vice President & General Manager, Branded Manufacturers for Digital River.

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