Double-Down on Free Shipping: Why It’s Your Most Powerful Ecommerce Marketing Tool
This post was recently updated from its previous version published in 2015.
What value do consumers place on the concept of “free”?
As an ecommerce business owner, how your customers conceptualize “free” is something you should thoroughly 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 sounds pretty great.
However, most Americans prefer money.
When trying to sell a product to someone who places such extreme value on their money, it would benefit you to begin offering something “free” in your ecommerce 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.
This is 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. 62% of shoppers won’t make their purchase if they don’t receive free shipping! (source)
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 satisfy 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?
OK, so now the most important question: can you afford to do this?
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:
Here’s the control version of a Free Shipping case study from RedDoor (above).
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.)
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 and obvious to your customer. If you don’t, they might just think you raised your prices for no reason.
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.
3. Make Shipping Profitable For You
To start, it’s going to take a bit of testing to figure out what strategy you want to implement and time to refine that strategy.
Here’s a great guide to “finding your Holy Grail” shipping strategy from Hubspot:You can also read a great pros/cons of free shipping article over on the ConversionXL blog here.
Can You Afford to Offer Free Shipping?
If you need help working through this concept and strategy, you can talk it through with our CEO, Allen.
Book a FREE 45-minute Strategy Session and you and Allen can discuss if and how “Free Shipping” can work for your ecommerce company. Click below to book a time!