Why Free Shipping is the Top Holiday Promotion

By Charles Nicholls | 25 Nov 2011

Customers are a clever bunch. Always on the look out for the best discounts, deals and shipping offers. Charles Nicholls explains why free shipping is the best promotion your business can offer.

It’s official. Free shipping is the shoppers’ top retail promotion of choice, driving the majority of customers to buy and to spend more than with any other promotion. This holiday season, consmmers will be even more price-sensitive, looking not only for the best prices, but free shipping and returns as well.

Consumers have been trained to wait for holiday offers prior to making purchases. A tighter economy suggests that this holiday season should see good growth for e-commerce sites as consumers look online for the best prices. However, there is evidence that the 2012 consumer is also moving online to save money across a spectrum of goods, including luxury items.

New research by the e-tailing group shows that 73% of consumers rate unconditional free shipping as a critical feature when making an online purchase.

The October 2011 study, The Connected Consumer, also shows that free returns are a critical feature for 70% of consumers, followed by discounts, coupons and rebates.

It shouldn’t be surprising that free shipping is so important. After all, the number one reason why consumers say they abandon shopping carts is the cost of shipping and handling.

Many consumers don’t understand why they should pay shipping charges at all. They don’t see the hidden costs for distribution built into the product in-store, and they consider an online purchase to be an alternative to going to the mall when they can afford to wait for delivery. The inconvenience of waiting is offset against the inconvenience of driving to the mall.

The e-tailing group’s research also shows that price is the most critical factor when considering a purchase, whether online or in-store (79%). The convenience of having a home delivery is number two (63%), but this is offset by impatience to get the product quickly (55%) or the ability to purchase from a local store (45%).

Noteworthy, 47% of consumers say that they will never, or hardly ever, buy products at full price.

Research also shows that 40% of consumers do a quarter or more of their online shopping at Amazon. Amazon’s site-wide free shipping, ‘Prime’ next-day free shipping, and hassle-free returns have set the benchmark to beat.

Moreover, an astonishing 60% of consumers surveyed go first to Amazon to establish a target price for the item as part of their shopping process.

What this Means for E-Commerce Merchants

Site-wide free shipping is difficult for many merchants to offer. Yet this should be a strategic goal for any brand. This is not from a point of view of competing with Amazon, but price-sensitive consumers are demanding great value, free shipping and easy (preferably free) returns.

If you can’t offer site-wide free shipping, then offer free shipping on select products. You may have some products that are shipped differently, and therefore, you can offer category-based free shipping. It’s also worth doing some analysis to understand which product categories are frequently abandoned and target free shipping for those.

Equally, there are some individual products that are much more likely to be abandoned. Build a spreadsheet ranking your frequently carted items by an abandon-to-purchase ratio calculation, and you’ll see immediately where there are issues. Some products are abandoned because of their physical size and prompt delivery/damage concerns. With each of these high abandonment products, check the product detail page, and see if there are enhancements that need to be made, either to the photography or to the product description.

Minimum-Order Free Shipping

Another alternative to site-wide free shipping is minimum-order free shipping. This gives those consumers that won’t buy without a promotional offer a reason to buy and to add more items to their cart in order to qualify. It often results in an increase in the average order value.

If you haven’t already done so, you should calculate your free shipping break even point. You can do this simply on a site-wide basis, or if you sell some categories at very different margins, then at a category level. This will help you determine where to set the minimum order threshold and will give you a basis for a sensible discussion with the chief financial officer.

Most e-commerce sites are offering some element of free shipping this holiday season. What this new research shows is that consumers want it all: great value, free shipping and free returns year round, not just during the holiday season.

1 Comment

One thought on “Why Free Shipping is the Top Holiday Promotion”

  1. OUTlaw says:

    interesting stuff. we do all love free stuff including free shipping, but is it a case of just forgetting that it’s built in to the price?

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