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Pros vs Cons: Is Offering Free Shipping During the Holiday’s Worth It?
Free Shipping is important to customers but is it going to affect your bottom line and lose you money in the long run? Find out what will work best for your business this holiday season.
Let's talk numbers. In Shopify's "The Future of Ecommerce 2021," it is noted that consumers desire free, fast shipping (and returns as well). In this report, Shopify's more than 1 million global sellers were surveyed, as well as consumers in 11 countries. 59% of respondents stated that free delivery would enhance their online shopping experience. More than one-third (34%) wanted faster delivery, while 40% wanted free returns. Furthermore, the survey revealed that 66% of consumers expect free shipping on all purchases. On top of all of this, the average cart abandonment percentage was reported high at 69.80%. Extra charges such as shipping, taxes, or fees were the leading cause of abandonment. As an e-retailer, these figures can be difficult to digest.
"There's no such thing as a free lunch."
And it is true! Both the food and the service must be paid for. Although most adults are familiar with this saying, the concept of "free shipping" remains extremely popular in e-commerce marketing. Therefore, if you are offering free shipping to your customers, it is most likely hitting your bottom line. So, what is the secret behind businesses of all sizes offering free shipping with no minimum order requirement or membership fee? Free shipping is possible in many ways. Among the options are increasing the price of products, accepting the cost of free shipping, requiring a minimum purchase order to qualify for free shipping, or providing free shipping only to members. But should you offer free shipping just because you are able to? In this article, we will honestly explain the advantages and disadvantages of offering free shipping this holiday season.
(1) Keeps Customers Loyal
Shipping strategies are part of brand loyalty. A good shipping experience is likely to result in a large number of repeat customers. Customer acquisition costs are five to ten times higher than customer retention costs. Offering free shipping is not only beneficial to customers, but it also plays into the brand's reputation, since e-commerce sites that do not charge for delivery demonstrate that they understand their customer's pain points and are willing to alleviate them. Thus, attracting consumers to come back.
#ShipTip: Despite all of the above, your target market might not require unlimited free shipping to be satisfied. Learn what type of shipping promotions your clients require in order to remain content and return for future purchases.
(2) Increases Average Order Value (AOV)
As mentioned above, a great strategy is to require a minimum purchase order to qualify for free shipping. The promise of free shipping will increase revenue partly due to an increased AOV. 24% of consumers will spend more money adding additional products to their carts to qualify for free shipping. This usually results in consumers shopping for more than they intended in order to qualify.
(3) It’s a Great Marketing Tool
Experts in both marketing and retail agree that offering free shipping is an excellent way to attract customers. Whether as an advertisement or promotional email, free shipping is an attractive offer that will encourage consumers to browse your website. It can complement any existing sale or can be a promotional sale of its own.
(4) Your Competitors are Doing It
There are times when it becomes apparent that you are the only business in your industry not offering free shipping. Remember, consumers are likely to spend more if free shipping is available. That means that even if your competitors have a slightly higher purchase price, shoppers will be willing to pay more in order to avoid the shipping charge. Free shipping has the advantage of putting you in direct competition with the rest of your industry, so you won't fall behind or lose money to your competitors.
(1) It’s Expensive
There is, of course, one drawback to free shipping that is obvious: the increased cost. Although you could increase your product prices to absorb some of the costs, in reality, when you provide free shipping you will take the brunt of high shipping fees. This means it will inevitably affect your bottom line. The strategy will only be successful if you have enough capital to fund the initial costs of the promotion or increase your retail prices across the board. Before you consider free shipping you need to see if you can even afford it.
(2) It Changes the Behavior of Customers
Free shipping is undoubtedly an attractive offer, but just because you don’t offer free shipping does not mean that customers will never buy. While it may increase the number of sales you receive, it can also lead to poorer customer behavior. Customers will be less likely to think about their purchases, making them more likely to make irresponsible purchases. Not offering free shipping may reduce order frequency, but it is also likely to result in fewer returns and higher profitability since the customer will have to cover the shipping costs themselves. Remember, customers, at their core, are brand loyal. As long as you are transparent about your shipping policy then you might not need to offer free shipping to satisfy customers.
(3) It May Lose Its Allure
Consider what type of product you are selling. When you sell high-end products, your customers should not be hesitant to pay for shipping. Having free shipping goes against the intention of creating something exclusive and top-tier in the market. Additionally, when free shipping is around all the time, customers may take it for granted, making it not as effective a marketing tool. You might find that your customers will feel more special when shopping with your company when you offer free shipping based on loyalty points, email lists, or some other type of limited promotion. This will help build brand loyalty with your target market and can be used to get customers addicted to your products so the next time they come to buy from your site they won’t care as much about a shipping fee.
(4) Company Size Has Weight
Small businesses might be the exception to the "free shipping" rule. More and more consumers are looking to support small businesses. According to a Local Business Consumer Sentiment Study, 82% of consumers will spend more to support a small business local to their cities. Nevertheless, small businesses should still be transparent about their shipping policies and not surprise customers with unexpected charges during checkout. However, when not a surprise fee, shipping costs don't affect small business consumers in spending more or less. As consumers are usually more concerned with quality over savings, if a small business obtains far better ratings and reviews than its competitors, this may persuade shoppers to make a purchase decision, regardless of whether shipping costs are free.
There is no way to sugarcoat it, consumers love free shipping. With popular shipping strategies from retailers such as Amazon and Walmart, customers expect fast and free shipping, regardless of how much it costs to provide the service. Free delivery is not without risk, however. Regardless of whether you offer free shipping or not, it is important to have a clear and consistent shipping policy. Take steps to prevent any problems that might arise if you charge for shipping or offer it for free.
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