If you shop online, I’m sure you’ve been there: you find an item you really like at a decent price, you add it to your cart, begin checking out, and find out that shipping will add an extra $7 to your bill. What an awful surprise. The idea of paying for shipping greatly upsets you, and you give up on your purchase. Does this sound familiar? I’ve certainly done that many times. In the age of Amazon Prime, should other online businesses offer free shipping? Is charging for shipping a thing of the past?
Why people love free shipping so much
Amazon Prime launched in 2005 and now has more than 150M subscribers in the US. The vast majority of Amazon customers have prime memberships and enjoy free shipping on their orders. This new business model changed the game, and free, fast shipping is expected more and more often. But why do people like free shipping so much? I find the meme I included above pretty funny, but it also makes a good point. Many customers wouldn’t mind paying $20 for a product if shipping was free but would never buy it for $15 if they had to pay an extra $5 for shipping. Charging for shipping means the customer has to pay extra, while offering free shipping means the customer gets a bonus for free. While the total cost is the same in both situations, the framing (the way the offer is presented) is largely superior in the first scenario.
Most ecommerce entrepreneurs are closely tracking their cart abandonment rate (the proportion of customers who add items to their cart but never complete checkout), as any improvement in this key metric makes a huge difference in sales. A recent study showed that the main reason customers abandon their cart is “unexpected costs” (this often means tax+shipping, although many companies start charging “processing fees” and “service fees” amongst other random fees). As expected, cart abandonment rates improve when businesses start offering free shipping. Does that mean that, as an ecommerce entrepreneur, you MUST provide free shipping? Well, CAN you offer free shipping?
How to offer free shipping without killing your margins
In reality, there is no such thing as free shipping. Free shipping for the customers means the company still has to pay for it. Sometimes, it makes little difference to the company’s bottom line, while offering free shipping is unsustainable for other businesses. A company selling expensive jewelry can easily offer free shipping; the cost of shipping a necklace will be a small fraction of its sale price. For someone selling heavy dumbbells, they’ll have to either charge for shipping or sell their product at a price high enough that they can offer a significant discount on the shipping fees. For those who can’t offer free shipping due to the cost and/or thin profit margins, there is still hope. Here are a few practices that can make businesses more competitive.
1 – Increase product sale prices
The meme above was a success on social media for a reason. People prefer paying higher prices but receive free shipping. Increasing prices works well for businesses selling unique products on their own channel when the customer can’t compare the cost between several sellers. This is also a source of extra profits when customers place large orders with many items.
2 – Offer free shipping for orders above $x
You’ve probably seen this on many merchant websites, free shipping if you spend $X or more. This ensures most orders placed by customers are profitable for the company. If the orders are too small, the customer will pay for shipping. This encourages them to spend more and is a very efficient way to increase the average cart value. For those using this strategy, you should undoubtedly make it very clear on your website. I personally like having a small “Spend only $xx more and get free shipping” on the screen, to remind the customer that they should buy more to get something for free. It works extraordinarily well for me, and I can’t be the only one in that situation.
3 – Offer free shipping in exchange for something
Besides their hard-earned money, there are many valuable things customers can offer. Their email addresses can be a nice addition to a company’s email list (email marketing isn’t dead!). They can help with surveys, help promote the product organically on social media and give their opinion on potential improvements, to name a few. Few customers would help a company for free, so offering them free shipping can be a good motivation to provide their personal info or help company marketing operations. It is time to be creative and build a relationship with customers.
4 – Offer memberships
Not everyone can be Amazon and have their massive logistic network. Copying their prime membership can be difficult, but this very successful program can be a source of inspiration for smaller businesses. Offering membership can be a way to keep a customer loyal if the members’ perks are good enough. Discounts on shipping fees, coupons, free items, and faster shipping are valuable bonuses that can make a membership worth it.
5 – Charge more on faster/tracked shipping
Ecommerce entrepreneurs can experiment with multiple shipping options at multiple price points. For example, they can offer slow shipping for free and charge a lot more for expedited or tracked shipping. If enough customers are still willing to pay extra for fast shipping, this can allow the business to offer free shipping to more cost-sensitive customers. This strategy is, however, less likely to work, since customers now expect free AND fast shipping (thank you, Amazon).
6 – Use it as a promotion
If you don’t offer free shipping, why not use it on specific items instead of applying discounts? Let’s say shipping an item costs you $5. Instead of giving a $5 discount on a $20 item you want to get rid of, why not try to keep the price at $20 but offer free shipping? That won’t always improve conversion rates, but it can be something worth experimenting with.
7 – Optimize your logistics processes and shipping costs
This is, of course, easier said than done, but for some, there might be room for improvement. For example, switching from in-house fulfillment to a 3PL provider might be a way to save on shipping.
Another important point to mention about shipping: NEVER hide the shipping costs until the last part of the checkout process. A page on the website about shipping is always a nice addition, and customers appreciate seeing the shipping costs directly in their cart without having to create an account or give their information. Not knowing about all the fees is extremely frustrating for customers and contributes to massive cart abandonment rates.
Conclusion
In summary, shipping is a big deal for customers. They now expect cheaper and faster shipping, and companies who can provide these will have a competitive advantage over those who can’t. Even for those on thin profit margins, there are ways to keep the customers satisfied without breaking the bank. However, this shows that businesses selling unique products with an attractive value proposition will have a massive advantage over those selling commodities. They will be able to offer better shipping rates and options much easier to keep the customers satisfied.
https://baymard.com/lists/cart-abandonment-rate
https://hbr.org/2017/03/walmart-wont-stay-on-top-if-its-strategy-is-copy-amazon
