Perhaps nothing drives indecisive holiday shoppers over the purchase line than an offer for free shipping. Especially when paired with discount or dollar-off promotions, free shipping can be the factor that incentivizes comparison shoppers and squeezes every last dollar of revenue out of the year.
The problem, of course, is that the cost of competing is not even close to free for retailers. Shipping costs have grown steadily on the heels of rate increases by the U.S. Postal Service, UPS, and FedEx — who have needed to adjust for the rising cost of last-mile delivery. No retailer is immune to the heightening expense. Amazon spent $21.7 billion on shipping costs in 2017, nearly double the amount it spent in 2015.
The battle for e-commerce supremacy between mega-retailers forces businesses of all sizes to play in the costly free shipping game. However, there are some ways these businesses can use free shipping strategically to minimize loss and meet broader business goals during the holidays and beyond.
1. Drive higher AOV
Setting order thresholds are nothing new with free shipping. However many retailers set their threshold as the value that tips the order from loss to profit. A better approach is to take your catalog’s AOV and set your threshold about 5 percent to 15 percent above it. For example, you might consider setting the threshold at $49 when your AOV is $42.
The key is to not merely make money — but make more money than you are today by driving up AOV. This approach comes with a couple of other benefits, too. It lets you avoid revenue loss on smaller transactions, while still being able to deliver free shipping messaging alongside competitors. This can keep your brand in the consideration set and increase click-through rate. Additionally, you’ll likely increase time on site and page views, as shoppers browse for that extra item to qualify for the threshold.
2. Create high-intent shoppers
Shoppers will do almost anything to avoid shipping costs. Exchanging contact information is one of them. When first-time visitors arrive at your site, consider greeting them with an offer to sign up for free shipping. This option helps you get in front of potential new customers immediately.
Those who sign up have higher intent to purchase, and you can continue targeting them with more personalized offers to drive interaction. You also have the opportunity to request additional data points, such as interests and engagement preferences, to ensure you deliver the best possible experience and reduce unsubscribe rates. Further along the customer journey, consider offering free shipping as a core incentive of a competitive loyalty program.
3. Derive more value from high-margin products
Free is such a powerful word that consumers will purchase certain products to qualify for the offer. If your product margins vary widely, consider offering free shipping only on orders that contain these higher margin products.
Take advantage of the leeway you have with these items, and use them to support shipping costs while converting customers. Perhaps particular types, brands, or categories of products are your high-margin items. Encourage shoppers to buy these items — for instance, by flagging the product pages with free shipping badges.
4. Leverage opportunities where shipping is cheaper
Consider offering free shipping in geographies that are close to distribution centers, which tend to be cheaper to ship to. This approach can maximize conversion rates, which will help offset the revenue lost in locations where you cannot afford to ship for free.
In a similar vein, limit free shipping to areas where you have been able to negotiate more competitive shipping rates. Another idea is to offer free shipping on items which are small and light, which, again, are usually less expensive to ship.
5. Realize free shipping doesn’t have to come with two-day delivery
Amazon has trained consumers to expect their orders with free shipping AND within two days. This is a costly combination unpalatable for most retailers. The truth is, speed is not always a major consideration for holiday shoppers.
There are always procrastinators who need fast delivery for the holidays, but the majority of consumers shop earlier in the season. Once the returns-and-exchanges period sets in, shoppers have much less deadline pressure. If you’re able to offer free shipping within a reasonable time frame, about three to five business days, you should be able to minimize your costs while still competing in the free shipping war.
While there is much upside to these free shipping options, be aware of restrictions when marketing in certain channels. For instance, Google Shopping will not allow you to advertise conditional free shipping for first-time shoppers, because the offer must apply to all users, not just new ones.
Ultimately, know what your business can tolerate when determining your free shipping strategy. Evaluate lessons learned from this holiday season, and experiment in the new year to determine what makes most sense regarding business economics and customer experience.
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