Here are four key ways to understand this fast growing free-shipping trend:
1. The importance of free shipping is growing. ComScore reports that free shipping accounted for an incremental 6 points of all transactions in 2009. As more companies are offering it, the pressure to compete intensifies.
2. Shipping costs are the most common reason for shopping cart abandonment. Many times consumers don’t understand the true cost of getting their products shipped to them, and as a result shipping becomes a weak link in the check out process. Forrester Reseach surveyed online shoppers and found that Forty-four percent balked at the price of shipping and abandoned their shopping cart.
3. Customers tend to spend more when they receive free shipping. Amazon.com is a great example of a company that has proven this is indeed true. They have been quite successful in getting their customers to purchase one more item in order to hit the free shipping threshold. A comScore survey of Holiday (4th quarter) spending in 2010 showed that the avg. order on free-shipping purchases was $110, compared with $95 for non-free shipping purchases. Now this may not seem like a big difference but the numbers start adding up fast!
4. Free shipping boost sales when offered as a special. Stamps.com put out a survey of online retailers in October of 2010 and found that 64% stated that “some type of free shipping promotion” with or without a minimum spend is the most effective promotion they can offer to drive sales during the Holiday season.
From the online retailer’s perspective there really is no such thing as free shipping. Large online retailers such as Amazon.com or LL Bean can absorb the added cost due to the economies of scale they have. If you are not a large behemoth of a retailer, how can you survive? Many smaller retailers understand that people will buy more if they offer free shipping, but they can’t afford to absorb all of the shipping costs and never pass any of them along to the customer. The good news is that with free shipping comes options. Actually, offering free shipping on every order all the time is the exception rather than the rule.
Here are six alternatives to offering free shipping all the time:
1. Flat rate. Many companies set up thresholds where if you exceed that threshold the shipping is free and below the threshold it is a flat rate. Macy’s ships all online orders of $99 or more for free. For order that fall below, they charge an $8 flat fee. In addition, companies that offer flat-rate shipping typically send those orders via ground delivery to keep their costs under control.
2. Shipping club. Many retailers offer customers the option of paying a one-time fee in order to receive free shipping or faster shipping. Amazon was the first to use this strategy but now other companies have caught on.
3. Optional upgrades. Online retailers are giving their customers the option to upgrade to a faster service for a fee which is usually between $3-$6 unless it is a large shipment. This allows the retailers to set the proper expectations in terms of delivery times and also gives decision making power to their customers, which is always a good idea.
4. Free shipping for minimum purchase. Many retailers now provide free shipping with a minimum purchase. This is becoming much more popular in the ecommerce industry.
5. Free shipping on eligible products. This option is often offered with products with higher profit margins or on products that a retailer wants to promote.
6. Free shipping for a limited time. A survey by the E-Tailing Group found that nearly 9 out of 10 online retailers offered some form of free shipping during the holiday season last year. Free shipping also works well to help move more products that are out of season.