The words Free Shipping seem like a magical phrase when it comes to online shopping. No one likes to pay for shipping; however what it comes down to is that the shipping cost gets factored in to the equation one way or another.
Today, we will evaluate how shipping cost, return shipping policies, and customer service can all impact not just sales, but profits.
Benefits of Offering Free Shipping
Here is a list of multiple free shipping studies that give a bounty of data and insight into customer shopping habits and choices when it comes to free shipping offered by online retailers.
The Find: TheFind’s new Quick Promotion tool shows a 23% traffic uplift for retailers running Free Shipping promotions on TheFind.
Harris Interactive: A ShopRunner/Harris Interactive study of over 2,800 online consumers issued the following results:
- 81% of survey respondents stated that they are less likely to make additional purchases on Web sites that charge for return shipping
- Consumers who PAID for return shipping at a given retailer DECREASED their purchases 75 to 100% within a two-year period
UPS: Recently featured the following study displayed in graph form that shows what factors drive shopping cart abandonment. Shipping and handling costs is the biggest reason for consumers to give up on the purchases.
AlixPartners: This survey showed some of the reasons that consumers do not purchase online, the top 4 results were:
- Need to see or touch the item before purchasing (37%)
- Cost of delivery too high (36%)
- Concerns about quality or freshness of a product (26%)
- Ease of returning the item (20%)
Compete.com: Compete Online Shopper survey lists some of the most compelling evidence for the free shipping model:
- 93% of respondents indicated that free shipping on orders would encourage them to purchase more products online.
- 2 out of 3 shoppers said they would buy more online if returns were free.
- When asked about their most recent shopping experience, overall customer satisfaction was 10 percentage points lower for those who paid for shipping compared to those who had free shipping
- High shipping costs were rated as the number one reason why consumers were not satisfied with their online shopping experience
- 67% of online researchers stated that they purchase items in a store instead of online in order to avoid shipping costs.
- 65% of respondents indicated that they choose the “˜in store pick up’ option, when available, for the same reason.
As you can see, there is no shortage of information out there that ultimately proves that offering free shipping increases sales. The boost in orders from offering free shipping is undeniable, however there is still a hard cost involved for the e-commerce retailers with shipping rates that is ever increasing. The question for e-commerce retailers is whether or not they can fit that cost into the margins that exist, or if it means raising the price. An important factor for retailers to consider is the other costs involved in offering free shipping and adding those into the equation. Advertising and new design costs involved will also be expenses to consider.
Return Policies and Free Returns
The big question here is will loosening up your return policy cause more returns than the increase in sales?
Beyond offering free shipping, offering free or “no hassle” returns are also a factor cited in many of these surveys of not only a service that influences customers to purchase, but also expect that businesses absorb that cost as part of doing business. Of course, the main question for your business is whether offering returns will increase sales enough to offset the cost of those who do return it.
What is the best way to find this out? By testing. Each company is different and what works for some business models might not work for others. Try out a test and compare your sales over time to the previous month and the same month last year to see how the conversion rate is affected. Then continue to monitor the amount of returns that come in and after a few months evaluate how this change affected your bottom line and adjust the policy or pricing accordingly.
Voice of Customer and Customer Service
The conclusion and takeaways from all of this data really depends on each type of business. How do your customers react to free shipping? Is product price a more important factor in your industry or do you have room to add some extra margin in to cover the costs of shipping and returns? Listening to your customers is a big part of this whole process. Communicating with them to find out what they want in addition to finding the core motivation for their purchases will give you the insight into how to make your business cater to the needs of your customers. Taking a careful analysis of your business and your bottom line figures is the most important factor to keep your customers and your wallet happy.
Richard Larson is the author and Brand Manager for GoPromotional, premiere promotional items supplier in the UK. He enjoys writing about marketing and business topics.
**Disclosure of Material Connection:
Some of the links in the post above are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally or believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials.”