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The Myth of Free Shipping and How Some Companies Can Offer It

Without a doubt, free shipping has become the boom or bust, make or break, must-have customer-based incentive for most, if not all, online retailers. On the one hand, it’s a surefire way to get customers to fill carts, complete checkouts and come back, time and time again, but on the other, when done ineffectively and without insight, free shipping can and will ruin an otherwise healthy business.

So how do some retailers get away with offering such an eye-opening incentive without dropping their profit?

That’s easy, they don’t.

But first, the numbers…

The Boom-Style Benefits of “Free Shipping”

Numerous studies have been conducted in the last five to ten years about consumer-based habits in regards to free shipping. One, carried out by the Wharton School  aayanhealth.com of Business in 2004, found that 52% of online shoppers abandoned their virtual shopping carts once they hit the shipping and handling portion of the process.

Another, more recent survey, performed by Forrester Consulting in Q3 of 2009, found that number to be closer to 44%.

Either way, on average, nearly 50% of would-be buyers visit a site, fill their carts and then throw it all away once they see the dollar signs rise in regards to the cost and care of getting it to their door.

When you take into account that some $38 billion – that’s billion with a b – was spent online in Q1 of 2011, and that already astronomical number will ultimately rise as e-commerce continues to explode, it’s easy to see just how much free shipping can effect you’re overall business model. (Not to mention that virtual mallrats, on average, spend 30% more, per order, when free shipping is included.)

So how is it done? Again, it isn’t. (Not like you think it is anyway.)

The Myth of Free Shipping

If you’re reading this as a shipper of goods, an online retailer or an e-commerce upstarter, you probably know by now that nothing in life is free, and that if it says it’s free on the front of the box, there’s undoubtedly a little asterisk next to it with a full deflating explanation on the back. Well, unfortunately, the same thing applies with free shipping.

Like the unicorn, the dragon and the loch ness monster, it’s all made up in the mind, or, more to the point, in the fiscal reports and marketing plan.

Offering outright no cost shipping – essentially eating the overall cost just to appease your customer base – often results in a busted business, or in the very least, a profit implosion. No, in order to offer the one thing nearly every online customer wants, you have to go all Wizard of Oz on the process and perform some ninja-style mental and mathematical gymnastics.

Here are a few “free shipping” strategies that many successful companies have employed to better their online business.

Free Shipping as a Marketing-Based Incentive. Without a doubt, shipping for free is a great way to get new customers in the virtual door and keep them coming back. That’s why so many retailers use it to their advantage and offer it to specific visitors, like first timers, long timers and those who’ve come across ads and emails offering their services. Because it’s so much easier to eat cost when it comes with a broader, more devoted customer base.

Building it into the Price. Arguably the sneakiest strategy of the lot, though still considered viable, many online retailers choose to go ahead and add the shipping and handling costs into the item itself, that way their customers aren’t “blindsided” right before their carts cross the finish line.

Bulk Orders Only. You see this on Amazon all the time – and nearly everywhere else. Spend such and such dollar amount and get free shipping. That’s because it works. According to a UPS report on Smarter Strategies for Free Shipping, they found that, “few retailers offered free shipping without a threshold, and nearly all reported that setting a minimum, often above the average transaction of a site, generally drove more units per transaction.”

“Free Shipping” Subscriptions. One of the more popular strategies out there right now is to offer a flat-rate fee, paid monthly or annually, for free shipping incentives. This is a great way to welcome loyal consumers to “the club” while recouping some of those high-priced delivery costs.

Flat-Rate Shipping. Last but not least, we come to the least free – and not nearly as effective – “free shipping” strategy, the flat rate. Yes, by offering a flat rate for all orders, you’ll encourage shoppers to buy more for less. On the other hand, if someone wants to buy one item, say for the first time while visiting your site, they might not like having to pay more than they usually would.

All in all, each incentive offers something of a solution to the necessary evil of e-commerce – a.k.a. “free shipping.” (And these are only but a few, as there are more out there – a la offering free shipping only a few time a year, like during peak seasons, or only making it available to a number of nearby states.)

Regardless, each business is different and the most viable strategy is the one that keeps profit margins high and the consumer.

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