Free shipping is passed that stage where it was considered as a fad or a growing trend in the eCommerce industry. Free shipping today is considered as a hygiene factor and necessity for many businesses to remain competitive. Consider this – according to a comScore report nearly 50% of all online orders today include free shipping (nearly 58% for the US – Business Insider report).
According to another survey, nearly 73% of online shoppers noted unconditional free shipping as “critical” to a purchase.
While important for customers, free shipping is often considered as a cost for businesses. And it is for some businesses – free shipping is not an ideal choice for every business, but for others this is an investment which pays for itself in multiple ways. Read on to find out how free shipping benefits businesses:
Improve Sales Conversions
Shipping charges is considered as one of the most cited reason for shopping cart abandonment. According to a Wharton study, 61% of consumers are at “somewhat likely” to cancel their purchase if free shipping is not offered. According to a comScore survey, 55% of online shoppers are likelier to abandon shopping carts that don’t offer free shipping.
Businesses invest a lot of money in marketing to drive traffic to their eCommerce store but lose customers over shipping charges. The success of an eCommerce store depends greatly on the conversions and adding free shipping to eCommerce store is a surefire way to improve your conversion rate.
Increase Average Order Value
Free shipping not only improves conversions but also drives revenue by increasing the average order value in more than one way. In a Deloitte report, it was noted that 40% of customers are willing to buy more items if they qualify for free shipping.
- No threshold – Free shipping is known to put shoppers in a better mood, which may lead them to spend more. In an online shopper survey, Compete found that 93% of online buyers are encouraged to buy more products if free shipping is included. In another study from Wharton, it was found that Shoppers spend 30% more per order when free shipping is included.
- With threshold – Creating a threshold for free shipping is one of the easiest ways to increase the average order value. Businesses often set a minimum threshold on order value for a customer to avail free shipping.
According to Stamps.com, free shipping orders produce an average of 15%-20% higher order values than orders without the promo. The increased costs incurred in providing free shipping can very easily be recovered through the increase in the average order value.
Increase Customers Loyalty
It is widely known that free shipping can increase sales and improves average order value; hence most businesses often consider free shipping a short term strategy. But when used effectively, free or discounted shipping can significantly boost customer loyalty and have a long term impact on your businesses; Amazon prime is a case in point for the same. According to a 2015 report from Consumer Intelligence Research Partners, Prime members spend an average of $1,500 per year on Amazon.com, compared with $625 per year spent by Amazon customers who aren’t Prime members.
Customer loyalty is one of the most sought after and an important parameter that determines the success of any business. According to a study by Marketing Metrics, the probability of selling to an existing customer is 60%-70%, while the probability of selling to a new prospect is only 5%-20%. And according to a study by Bain & Co., increasing customer retention rates by just 5% can increase profits by 25% to 90%. Loyal customers also spend more and provide free word of mouth promotion.
Shipping prices also impact customer loyalty by improving customer satisfaction. In a study, compete.com found overall customer satisfaction to be 10% points lower for those customers who paid for shipping compared to those who had free shipping.
Gain Competitive Advantage
With increasing competition and very little value differentiation, businesses would do anything to gain an advantage over their competition; and free shipping can give businesses that edge. In a North American Technographics Retail Online Benchmark Recontact Survey nearly 38% of consumers said that they have bought from a specific online retailer because of free shipping. Even during the most competitive time of the year, the holiday season, free shipping can give you the edge over your competitors. In a Stamps.com survey, 64% of respondents indicated that a free shipping promotion was the most effective holiday promotion.
Also Read – Shipping – How It Affects Your Business
It is not a Bed of Roses
Like with everything free shipping too has its advantages and disadvantages. While free shipping can help you increase sales by improving conversions, increasing average order value, improving customer loyalty and giving you a competitive edge it also has a negative impact on your profit margins and sets unrealistic customer expectations (they would expect you to offer free shipping 365 days a year).
Hence, it is important to evaluate if free shipping is right for you, weigh the pros and cons for your business and make an informed decision.
In our next few blogs, we will discuss the strategies businesses can use to offer free shipping and how businesses can evaluate if free shipping is right for them. Stay tuned!
Let us know how free shipping has had an impact on your business by commenting below.