It’s obvious on its face that consumers strongly prefer to buy products online if the vendor offers free shipping. The usual way that e-merchants need to offer free shipping without cutting into margins is to include the shipping cost in the listed price.
Some marketplaces are pushing the trend through their seller policies. In July 2019, Etsy announced that it’s giving priority to sellers with items that ship free and to shops that guarantee free shipping to US buyers on orders of $35 or more. This means their items are elevated to the first page in search, over similar offers that don’t include free shipping.
Whether you work shipping into listing costs or add them separately at the end of the order, the end cost will be the same. So, why would you need to offer free shipping if as a result, listing prices appear higher on your site? Won’t this make you look less competitive against other sellers?
There are three major benefits of building in the cost of shipping to the prices on your e-commerce site: meeting the expectations of consumers, avoiding buyer hesitation and cart abandonment, and converting more sales.
Customers now expect free shipping.
Consumers have begun to expect free shipping to be available at many retail sites, whether it is a bonus for buying a certain number of items, or an automatic feature of the site. And even if they’re not fully expecting it, they actively seek free shipping offers when they search for sites to do their shopping.
Working the cost of shipping into listing prices on e-commerce sites is becoming more common as free shipping grows in popularity. The trend began in the last decade with Amazon Prime customers, who enjoy free shipping as a perk of this buyer membership program. Then other sites such as Overstock began to experiment with the need to offer free shipping, often for a minimum order size or for certain higher-priced items.
At this point, Amazon has set the bar for other e-commerce companies to match fulfillment times and shipping costs.
Adding the shipping cost makes buyers pause.
Because of their elevated expectations for free shipping, people are significantly deterred from purchases by the sudden spike in cost if they see a shipping cost as they’re completing their order. Especially with discretionary and impulse purchases, this causes them to pause and think about whether they really need it that badly. And it sometimes leads to cart abandonment.
When you tack on shipping at the end of an order process, customers have now seen something listed as one price, only to find that in reality it costs a chunk more–on top of any sales taxes that already get added at checkout. This has the potential to build a sense of distrust.
At first, it may seem counter-intuitive to guarantee free shipping to customers, even if they’re demanding it. For many companies, it simply isn’t possible. After all, someone has to pay for shipping. If it isn’t consumers, then it’s you.
Building the cost of shipping into your product prices can mitigate this issue. That way, you don’t have to choose between satisfying your customers and generating revenue. And the psychological effects of the free shipping promise are shown to outweigh any marginal price resistance if they’re comparing deals from other vendors.
Free shipping can boost sales.
In addition to attracting their interest with free shipping offers, consumers often spend more on products if they know there is a promise of free delivery. It’s estimated that online shoppers spend 30% more on orders with free shipping than on orders with a separate delivery charge. They’re happier to buy more products when they know each addition to their shopping cart also pushes up the shipping cost of the order.
According to Comscore, 83 percent of US online shoppers are willing to wait an additional two days for delivery if shipping is free. And 58 percent of US online shoppers have added items to their shopping carts to meet a minimum order amount that qualifies them for free shipping. These studies demonstrate that offering free shipping can lead to greater sales revenue, since people are willing to buy more to get free shipping.
To prove out the value of free shipping for your particular market niche or brand, try these four simple tests.
These four simple tests were outlined by marketing guru Neil Patel. They are for any e-commerce store owner who wants to use actual data to help maximize profits on a free shipping offer. Patel says if you do this right, you can see a 15-30% improvement in net profit (not just conversions).
- Establish a Baseline: Compare conversion with and without a free shipping offer.
- Create Thresholds: Increase the minimum order value required for free shipping, and test the improvement in margin.
- Set Restrictions: See what kind of improvement you’ll get by offering free shipping only on select products where it is profitable.
- Enact Price Increases: Increase all your product prices to compensate for the loss you take on free shipping, and see how your profit compares.
You do need to offer free shipping where it will strengthen your brand.
Even if it raises the prices on your listed products, building shipping costs into your prices is a good move. It will tend to bolster your brand’s credibility with a broad audience, and lead to increases in revenue and conversions. This is an ideal way for SMBs to compete in the e-commerce industry and meet consumer expectations.
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