Magic of Free Shipping

Free Shipping is one of the common tricks to convert visitors into customers. What I found though is that most of retailers neither have an analytical framework to identify products to be sold with free shipping and nor have tools to evaluate results of the promotion. Here are some of my best practices that you are welcome to try out.

Magic of Free Shipping
There are numerous researches on why Free Shipping feels like an irresistable deal. The best books I read on this topic are Predictably Irrational written by Dan Ariely, an extraordinary guy who I took a number of seminars with at MIT, and Free Prize Inside by Seth Godin. Dan dedicated a chapter of his book to the "Magic of Free Shipping" looking at Amazon`s success with Free Shipping program and lack of thereof in France where Amazon tried "1 euro" shipping. There is something magic about free and people (me included) frequently overlook other aspects of the deal buying from a retailer with Free Shipping even if there is a competitor selling for a lesser price.

Presentation: Full Shipping, Discounted Shipping or FREE SHIPPING
Let`s say I am a retailer and sell a coffee table for $100 and charge $25 for shipping. I can present this product in the following ways:
  • Table $100, shipping $25
  • Table $120, shipping $5
  • Table $125, shipping FREE
Just look at these options. Do you feel that one of the deals is superior to another?

I ran my own experiment and asked friends how they feel about three options above. Since most of the folks received an MBA degree from MIT, Stanford and Harvard and know a lot about marketing tricks - I expected them to make a rational choice.

Most of the folks felt like $25 were too much for shipping and they could get a better deal at Walmart. "$5 shipping deal" looked much better compared to a drive to a store. And FREE SHIPPING was a clear winner - friends compared this experience to ordering a breakfast into your hotel room and hearing that "it`s complimentary". Completely irrational but it works.

There are three major sales channels: Free and Paid Search, Comparison Shopping and Marketplaces. Visitors coming through each of them are sensitive to certain things but Free Shipping appeals to all. There is just one way to evaluate impact of Free Shipping on customers coming through each of the channels - select similar products, offer free shipping on some and regular deal on others. Test!

Landing page quality is extremely important for "search" visitors. They judge potential buying experience based on quality of the page, product selection, promotions and to certain extend price. Free Shipping has huge impact on conversion.

Comparison Shopping
It used to be true that lowest product cost was THE KEY to get customers click on your link. Now almost all engines have shipping costs incorporated and provide an easy way to compare total "landed" cost for all the retailers. My personal experience is that lowest "landed" cost can increase sales 10X. Check out my article on leveraging actual shipping costs to drive sales through shopping engines.

When I`m buying through comparison engines I click on 3-5 links with the lowest total price. My selection is narrowed to just a few retailers and most of the times one with Free Shipping wins. The magic still works!

Marketplaces provide retailers with more or less uniform "look and feel" for the product pages. There are few ways to differentiate but good product description, price and free shipping promotion. If your competitors offer free shipping - you lose if you don`t.

Increasing average order size with Free Shipping
In certain cases Free Shipping can be used to increase average order size. Amazon`s FREE Super Saver Shipping on orders over $25 is a good example. Shipping cost for 2 books is the same as for just one but variable costs (marketing, shipping etc) are allocated towards two products thus margin goes up.

I`m not entirely convinced the same trick would work for a bundle of a $500 patio heater and $600 set of patio furniture but it`s worth a try. At very least - give free shipping to people buying warranties.

Staying profitable with Free Shipping
It goes without saying - whatever you do - your order margin should always be positive. I`ve written a few articles on Margin Management, here is a one margins and free shipping "How Free is your Free Shipping?".

There is a clear advantage of a structured approach to the Free Shipping dillema. It`s survival of the fittest and smartest. Experiment and you`ll find your great ways to convert "predictibally irrational" visitors into customers.

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Anonymous Anonymous said...

I read "Predictably Irrational" and decided to try the free shipping on all our products (keeping in mind our margins). There is another side benefit - some states charge tax on shipping and handling. Some consumers will get confused by this and think the retailer is trying to rip them off. Free shipping means tax (for instate customers) is simple to understand.

January 24, 2009 at 2:10 PM  
Anonymous Anonymous said...

Nice work, Just like complementary breakfast free shipping works great ;)

February 10, 2009 at 8:27 AM  
Anonymous Galia said...

Won't people generally pay more for product if they can have free shipping and free returns? If you price compare Amazon and Zappos, Amazon is almost always cheaper yet people will buy from Zappos because they get free ship and free returns. Great blog, btw, bookmarked.

September 20, 2011 at 1:35 PM  
Anonymous Anonymous said...

free+shippingkidsGreat! It sounds good. Thanks for sharing..

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