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 opt 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.
You can incorporate shipping costs into the price of your item rather than adding them on at the end of the order. The end cost to the buyer is the same. So, why would you need to offer free shipping if your listing prices then appear higher? 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.
As free shipping grows in popularity, more and more e-merchants are simply including that cost in the product price. 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.
Through its Prime program, Amazon has set a new standard for treating fulfillment times and shipping costs.
Adding the shipping cost makes buyers pause.
Due to the raised expectations for free shipping, seeing a shipping cost at the end of the ordering process can be a negative surprise. 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.
At first, it may seem counter-intuitive to guarantee free shipping to customers, even if they’re demanding it. It’s simply unaffordable for a lot of e-commerce businesses. Somebody has to pay for the shipping and if it isn’t consumers, then it’s you.
Building in shipping costs to product prices is how most sellers are solving this problem. Plus, the psychological effects of the free shipping promise are shown to outweigh price resistance if they’re comparing final cost from other vendors that don’t ship for free.
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 Your Baseline: Compare how your conversion rates change with and without a free shipping offer.
- Try a minimum order level: Make shipping free only for orders over a minimum value, then test whether it improves your margins. (In many cases, this incentivizes the buyer to order a little more to qualify for the minimum– a sale you wouldn’t have otherwise made.)
- Make It Selective: Apply the free shipping policy only on those select products which tend to be more profitable.
- Try Across-the-Board Price Increases: Marginally increase all of your product prices across the board to make up for the loss you take on free shipping, then compare your profits after a defined period.
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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