There has been quite a bit of research over time suggesting that an offer of free shipping converts better than an offer of a discount. For example, In 2007 Forrester Research determined that 61% of online shoppers prefer to shop with a retailer that offers free shipping than one that does not, and in a 2008 study PayPal and ComScore discovered that 43% of shoppers abandon their shopping carts because of unexpectedly high shipping charges.
Interestingly, some of the research suggests that free shipping wins out over a discount, even when the customer would save more money through a discount. Some researchers have theorised that getting rid of the shipping cost essentially levels the playing field between online and bricks and mortar shopping, psychologically freeing the consumer to buy.
How do you actually manage free shipping?
Talking about the advantages of free shipping is different than actually figuring out how to manage a very real cost.
Increase purchase price
Some retailers add the shipping cost to the purchase price, so that they do not have to assume the cost. But others fear that comparison shoppers will decide against a product with a price that is being inflated by shipping, and never even consider the issue of free shipping. Others have tried the bundling technique, where they quote the price as including shipping and handling. Once again, there is significant concern that the bundled price is still going to drive away customers who are not willing to do the math.
The other problem with adding the shipping to the price is the problem of returns. If a customer returns an item, you need to return the cost of the product plus the shipping cost, so you end up paying shipping for returned goods yourself.
Shipping Cost Equals Marketing Budget
Some retailers eat the cost of shipping, considering it to be a major part of their marketing strategy. That makes some sense, though you still need a marketing budget that is sufficient to get the word out that you offer free shipping. The advantage is that ads promoting free shipping tend to convert better than ads promoting a discount.
Alternatives to Free Shipping
If free shipping is not possible, here are some alternatives to consider.
Intelligent Shipping
Some retailers use a concept known as intelligent shipping. This methodology charges shipping differently, based upon customer information such as amount of purchase, geographic location, customer loyalty and so on.
Free shipping over a minimum spend
You can offer free shipping over £50/$50 or over £100/$100 or whatever makes sense in your setting. It is worthwhile to try different levels and see what works. If you find that there is no significant difference in rate of purchase at a £60/$60 free shipping floor versus an £100/$100 floor, stay with the higher number.
Flat rate shipping
This is a 'lose some win some, hope it evens out' strategy. You offer a flat rate shipping charge independently of the number of products purchased by your customer. If by introudicing this type of free shipping offer your average order value starts increasing, then this is the right strategy for your market.
Increase shipping over time
Start at a low shipping rate, slowly increase until you begin to get complaints or see an increase in shipping cart abandonment.
Testing to Find an Answer
It seems that the issue of how to handle shipping may truly vary from business to business or from customer to customer. The best strategy is to test options within your marketplace and use the data to drive your decision making.