26 Apr 2013
Shopping online is rapidly becoming the biggest sector of the retail market, but the entire industry hinges on one thing: shipping. One of the highest points of abandonment in the online shopping process happens at the checkout stage, when shipping costs are calculated. As a result, many retailers have chosen to offer some sort of ‘free shipping’ promotion, but they often go about this in many different ways. We’ll go through three of the most popular methods, to help you decide whether or not your business can benefit from implementing one of them.
One of the newest entrants to the shipping arena is the ‘annual fee’ method. The most well-known example of this is ‘Amazon Prime’, where customers pay an annual fee of $79 USD and then receive free shipping on all their purchases. This is an attractive model for customers who purchase frequently, but may not be a viable option in many markets, as not all markets have a high enough purchasing frequency. If you run a furniture company, for example, most of your customers aren’t likely to be repeat business.
A far more common method of offering free shipping is to set a minimum required purchase. “Orders over $99 ship free!” and other similar slogans adorn the websites of many popular retailers, as this model essentially turns the cost of shipping into a discount for the consumer. There is an added benefit for retailers who adopt this method, however, depending on where the free shipping threshold is set. By examining average order size and then setting the threshold just above this, it may be possible to capitalise on customer desire to reach that free shipping threshold by increasing their order size, which obviously translates into a sales boost.
This brings us finally to the most expensive option of the three, which is simply offering free shipping on all purchases. While this is expensive for the retailer, and grows more expensive as shipping costs rise due to other factors such as rising fuel costs, there is a great psychological value in offering free shipping as a sales driver. While many retailers still reject this idea as too expensive, it could be considered as a marketing expense, which makes it more palatable. Again, the viability of this model will depend on what your business offers – in some markets, it could become a huge advantage, whereas in others, the profit margins and average sale sizes may simply be too small to justify the expense.