free-shipping-as-marketing-strategy-1

Double-Down on Free Shipping: Why It’s Your Most Powerful Marketing Tool

by Allen Burt
February 17, 2015
1 Comments

What value do consumers place on the concept of “free”? As an e-commerce business owner, how your customers conceptualize “free” is something you should definitely understand.

The idea of getting something for no cost will forever be tempting to the American consumer. Americans like to work, and as a result we seem to place a pretty high value on the money we earn. A 2014 survey conducted by Workonomix showed that 79% of Americans would prefer a 5% raise over an entire extra week of paid vacation.

Not sure about you, but an extra week of paid vacation in Patagonia sounds pretty great. Enough time to get in a few good hikes (at least!) in some of the most beautiful mountains in the world.

However, most Americans prefer money.

When trying to sell a product or service to someone who places such extreme value on their money, it would behoove you to begin offering something “free” in your e-commerce strategy. Give your customers something valuable in exchange for nothing.

Here’s a look at how free shipping is rationalized by your customers, and how you can see the data behind implementing this as a marketing channel.

1. Offer Free Shipping, Reduce Abandoned Carts

When a customer is presented with a “freebie”, they aren’t only thinking about the cost (or lack thereof). Their thoughts are fueled by their own internal consumer psychology of value and rationalization.

Let’s look at value first.

How much value do your customers place on your products? If customers pay additional for shipping, chances are they really like your product and think it’s worth paying extra for the shipping. But, it’s been proven over the last several years that online shoppers have actually come to expect free shopping from the retailer.

Why? That’s where rationalization comes in. From a great article by RJMetrics, “The Psychology of Free Shipping: Why it Works as a Marketing Tool,” we found 2 examples of possible consumer thoughts:

Customer psychology: “I’m buying your products, so you should send them to me. Why should I pay?”

Offering free shipping to a shopper with this mindset can decrease your rate of abandoned shopping carts. A 2013 study from Compete.com found that 62% of shoppers wouldn’t have made their most recent online purchase if they hadn’t received free shipping.

Customer psychology: “I’m spending a lot of money with your business, can’t you show me a little appreciation?”

By offering free shipping after a pre-determined total dollar amount, you can not only increase your sales, but satiate this customer’s need for “a break” on shipping charges. In a 2014 study from comScore, they found that 58% of US online shoppers have added items to their shopping carts to qualify for free shipping.

2. How Can My E-Commerce Consume the Cost of Free Shipping?

CREATE AN A/B TEST
Before jumping on the Free Shipping Bandwagon, you need to decide if your business can afford to absorb the cost. If you are a growing business and this marketing strategy sounds interesting, yet scary, a good approach would be to pull dollars from other marketing channels that are more focused on long-term branding, for example.. By taking a portion of this budget and applying it to testing out a more short-term, ROI initiative, you can successfully test this strategy to see if it can work for you.

But remember, you have to be careful! If you don’t plan well for this strategy, giving away free shipping can quickly kill your profit margins.

If you plan correctly, the portion syphoned from other marketing channels can be used to develop an A/B test. With an A/B test, you can gather data on two different versions of your website: one with free shipping offered and one without (control). Let’s look at an example:

free shipping case study
Here’s the control version of a Free Shipping case study from RedDoor (above).

free shipping case study

And here’s their altered, Free Shipping version. (Notice, they’ve added a minimum amount, or threshold, for the shopper to qualify.) After their testing period, the company saw that when customers were given a free shipping incentive, orders increased by 90% with a 96% confidence level. In addition to this, the company’s Average Order Value (AOV) also rose by 7.32%. (Full case study here.)

INCREASE PRICES
The idea of increasing your prices may automatically send a wave of fear through your body. Nobody likes to pay more, UNLESS you have a product worth paying for or you can focus your shopper’s attention away from the pricing and toward the “deal” they’re getting with free shipping!

Of course, if you have a fantastic product, your customers won’t even bat an eye at the shipping charge in their checkout. But if you feel that your customers will be upset by a price increase, remember the previous section about consumer psychology.

When shoppers are offered free shipping – and they can visually see it – they will not only complete their purchase, but may even add additional items to their cart because they are getting something for free!

If you’re going to increase prices, make sure you advertise your Free Shipping. It should be very noticeable to your customer.If you don’t, they might just think you raised your prices for no reason.

free shipping header example

Image courtesy of Shopify

Additionally, a price increase can affect consumer perception of product value. A higher-priced item usually has a higher perceived value from the customer. This is why it is important to test your Free Shipping strategy and see how consumers are valuing your product with a price increase and free shipping versus your normal price.


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Allen Burt Allen Burt is the CEO & Founder of Blue Stout. A design and development agency that builds applications to power commerce and drive user engagement. Follow him on Twitter.