6 Ways Online Vendors Can Reap Benefits from Free Shipping
Free is a perennially sweet word. According to Dan Ariely, a behavioural economics researcher, people typically overvalue the benefits of “free” items even when compared to better-quality items that cost a small price. Needless to say, e-commerce industry is also influenced by this. Deals, coupons, free shipping etc. are the preferred buzzwords that entice shopaholics to an e-commerce store. Among the three; the impact that “Free shipping” creates on consumers is tremendous. The success of ‘Amazon prime’ is a primary example of the positive effects of free shipping (there are now 10 million subscribers to Amazon Prime). It is found that over 2 million Google searches each month in the United States include the phrase “free shipping” and a huge portion of customers abandon their cart because of shipping charges!!
There are some misconceptions about ‘Free shipping’ that it may not be a viable option for small business entrepreneurs, while big companies like Amazon consider free shipping as just an option to delight their customers. But the fact is, free shipping not only delights the consumers but also helps in increasing conversion rates. So, how do some successful startups offer free shipping without affecting the profit margins?
Set Shipping Threshold
People prefer to choose the slower standard delivery options to save money. Yet it’s surprising how many are ready to spend more to reach the free delivery threshold, which may involve adding more products to their cart. Recent UPS study shows that around 58% of customers have added additional items to their shopping basket in order to qualify for free delivery. Hence free shipping threshold is considered as the most obvious method to increase AOV (Average order value).
“To set a minimum order amount for your free shipping offer, take your average order amount and set your minimum about 10% to 15% higher. This encourages shoppers to spend a little more to save on shipping.”- John Lawson, eBay Platinum Powerseller.
Raise the Product Prices
Let’s discuss it with an example. Consider me as a buyer who wants to buy a bed cover that costs $25 in your online store. So first I would think about whether this bed cover is worth its price. If yes is the answer, you were able to overcome the 1st friction point in my mind. Once I reach the checkout page if I see an additional $5 as shipping charge, I’ll rethink on what the actual price of this bedcover is. Is it $25 or $30? Is it worth an additional $5 to what I am already paying? The answer would be No’’.
Contrast this with the situation where you are offering me the same bed cover at a cost of $30. Here I have only one friction point of whether it is worth $30? Majority of consumers would take it as a “yes”. This implies:
Higher product price + Free shipping =less cart abandonment
Find the Most Cost Effective Ways to Ship
Prefer least expensive options such as FedEx Ground or UPS Ground, they are always cheaper. As per a recent survey by Internet Retailer and Bizrate Insights, online shoppers prefer free shipping over fast shipping.
If you are offering free ground shipping and charging an additional amount for expedited 2-day shipping, do not display the name of your carrier name on your website. Because in some cases you will be able to use the ground shipping method to meet 2 days expedited delivery depending on the location of your product deliveries.
Implement Loyalty programs
How about taking a page from Amazon Prime’s strategy book? Create a membership plan with an annual charge. This method has a great advantage that it will make the term competition irrelevant to an extent. Once a customer becomes a part of your membership program, they will prefer to purchase from your store. In fact, this is a technique to retain your good customers.
Use free shipping as a promotional event
Offer free shipping for a selected duration. This will help to stimulate window shoppers and prospective buyers. If you are already offering free shipping with a threshold, lower the threshold value. Do not forget to send it out to all the media where your target customers are actively engaging.
Offer free shipping on selected items
As I mentioned earlier some companies had to endure the negative impacts of free shipping. Wrong selection of products was one of the reasons. Well, what is meant by wrong selection? This is the place where a smart entrepreneur’s brain comes into play. When it comes to free shipping and product selection, ‘free shipping +products having lesser profit margin’ is a wrong choice. Never provide free shipping for those products which have a lesser profit margin. Avail free shipping on those products which has a healthy profit margin and lesser shipping costs like jewellery and fashion accessories.
Free shipping is not a long-term dream for small business entrepreneurs nor is it a technique that drains your profits. Smart retailers of all sizes have successfully implemented this technique. In fact, if you can implement the right ‘free shipping’ strategy, it can be considered as one of the best ‘marketing tools’. Don’t afraid to experiment and keep in mind that your ultimate aim is to increase profit.