It seems that in today's world of ecommerce, the phrase 'free shipping' is almost like a magic wish opening up new possibilities and breaking through the barrier of customer limitations.
It is certainly not just an interesting idea, but a trend that is spreading ever more clearly at the last mile delivery stage in online shops and big sales platforms. Nobody should be left wondering whether free shipping is still an option or a requirement.
Now online retailers need to calculate the costs and profit margins associated with the creation of a free shipping strategy. Today's article is the essence of the most important facts.
Why online store should offer free shipping?
In the last two years, the number of internet users in Europe has increased by around 4% - from 87% in 2019 to 91% in 2021, according to research by Eurostat. In the same study, we can also find information that the number of online shoppers has increased from 68% to 75% over the same period.
There is no doubt that the pandemic and the necessity to fulfill purchasing demands in a contact-free manner have had a significant impact on these changes. People have been mobilised in some way to start buying online, even those who have resisted for a long time.
What is the consequence of this in the context of the post's topic? Firstly, it is evidence of the steady growth of the ecommerce market.
Secondly, it also suggests that the increasing number of shoppers will be reflected in growing customer expectations which in turn will drive this market forward. And we all know that this force cannot be stopped.
Free shipping is nothing new in online retail, but it has never been so common. Already the 'State of ecommerce delivery' report published by MetaPack in 2016, shows that for almost half of the respondents free shipping was the most important factor when deciding to buy online.
And in the 2021 report on the question 'What do you value most in your deliveries from online retailers?', 35% of people surveyed identified cost as the most important asset.
Not much has changed over the years - it's just that customer demands in the area of shipping costs have become more visible. The promise of free shipping works because customers want to feel that they have made a good deal, and this is a really powerful marketing tool.
How does free shipping impact purchase behaviour?
Offering free shipping actually makes a huge difference in ecommerce relationships with shoppers, especially in winning loyal customers. It works in much the same way as a free gift or discount code - we like to get them, and we love to use them. There are at least several options for using free shipping promotion to the advantage of the online shop.
Minimum order threshold
Probably one of the most popular methods is to set a free shipping threshold - the lowest purchase amount that entitles a customer to free shipping. Very often buyers add more products to their shopping cart just to benefit from it.
Such findings appeared, among others, in the BigCommerce report published in 2019 - up to 84% of consumers admitted that they're ready to buy more to receive free shipping.
For sure this option can work well, bringing great benefits to the online retailer, who will actually sell more than in an average order, thereby reducing the costs of free delivery.
Time-limited free shipping
Another possibility is to offer free delivery limited to a certain time frame. It is often linked to the holiday season such as Christmas, but also to the many other special days that are celebrated throughout the year and are related to the shop's assortment. For example, it can be free shipping on World Book Day offered by bookstores or the same idea on the occasion of International Dog Day in pet shops.
Of course, this does not mean that free shipping promotions can only be set on certain dates, rather it should be seen as a tip. The decision is always up to the owner. However, it is sure that customers get used to such promos and often look for them when planning their online purchases.
Free delivery in loyalty programs
A very good idea and way to increase the conversion rates is a free shipping offer directed to members of loyalty programmes. Return customers are very valuable from a sales point of view. When they decide to buy again it means that they already established a relationship with a brand. An exclusive offer - just for them - will reassure them about it and improve the customer's lifetime worth. Of course, it can also increase the average order value cause shoppers are willing to spend more money in shops they like.
One of the more interesting free shipping tactics for an ecommerce store is that called free returns. It may involve free delivery, but it really doesn't have to.
Regarding returns, the pandemic has not changed consumer behaviour. According to research from 2021, customers return a similar number of products as in the days before COVID. The same survey also shows that free returns are another major aspect of shopping online, as indicated by 76% of people questioned.
This should come as no surprise, customers consider the total cost of a purchase - product price, delivery, and return - when making a buying decision. If the additional costs are too high or greater than the value of the product, they will certainly cancel the order.
Flat rate shipping
In fact, it is hard to call it free shipping, but it is still one of the options used.
The idea is to set a single shipping cost that remains the same regardless of the size of the items, weight, or shipping destination. In short, no matter how much space an order takes up, it will cost the same to ship it.
This option is best suited to customers placing large orders or ones above a predetermined minimum value. Yet, it works the other way too - it can discourage those who only want to buy a single item. They probably give up to not lose money on delivery.
Unconditional free shipping
While it's not the most popular form of free shipping from a retailer's perspective, it's certainly everyone's favourite. Because would anyone complain about year-round free shipping? Hard to believe.
It's a great option to attract new customers and frugal ones, for whom a few dollars saved on delivery is a very persuasive deal. Nevertheless, you have to think about the costs, because only with a good conversion rate it will become profitable.
How to offer free shipping without losses?
No magic can work here - online stores have to pay for the delivery anyway. There is no such thing as true free shipping. But how to do it right?
First of all, you have to start by understanding and calculating shipping costs. These estimates should be translated into financial models and the resulting values incorporated into product prices. By doing so, you will be able to take a realistic look at the challenge and make the best business decision.
It will also be useful to develop a free shipping policy that clearly defines what customers can expect. If you want to start shipping internationally explain how it will work - how long does it take and, above all, how much does it cost - and can it also be free? If you decide to set up free shipping on a minimum order value, it is worth mentioning that too.
Think carefully about the shipping option you want to offer with this promotion. Ground shipping will certainly be cheaper than express airfreight. Weigh up the pros and cons.
To reduce shipping costs, you may also consider partnering with an external logistics provider who can offer better shipping rates. In addition, you will be able to choose the newest shipping options and make use of the provider's fulfillment centers.
There is no denying that offering free shipping may initially involve high costs. However, it is so profitable in the long term and appreciated by clients that it is definitely worth considering.
The profit margin associated with online shopping should have a basis in financial calculations, to avoid as many disappointments and mistakes as possible. Also, it is good to focus on ideas and solutions that help to achieve a higher average order value.
As one of the biggest problems of ecommerce is cart abandonment, often caused by hidden shipping fees, it is worth betting on clear communication and transparency. The free shipping thresholds are not as scary as they seem. Even if you feel that it is not the right time to change your dispatch policy, you can think about reviewing your delivery methods. Low shipping costs will also be an attractive option for buyers.
We will keep our fingers crossed for all the changes to bring the best results in time!