How Free Shipping Could Improve Your Online Business

How Free Shipping Could Improve Your Online Business

eCommerce platforms and online sellers apply marketing tactics to attract customers. Among these marketing techniques is free shipping. The concept of free shipping is relatively easy to comprehend as an offer from retailers to send your purchased item for free. As a marketing tactic, free shipping has become an important purchasing factor for online consumers.

In fact, a 2020 survey revealed that 8 out of 10 shoppers would choose free shipping over expedited shipping. This somewhat correlates with 62% of shoppers identifying free delivery as a critical differentiating factor for business improvement.

Why Does Free Shipping Attract Online Shoppers?

 

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Photo By: Nick Youngson via Picpedia; Licensed Under CC BY-SA 3.0

 

The impact of free shipping on businesses has led to eCommerce platforms, such as Amazon, adopting free delivery. The concept of free delivery has been a highly effective marketing tool for Amazon, leading to a drastic increase in customer orders across many marketplaces. 

According to behavioral economics researcher Dan Ariely, consumers typically overvalue the benefits of free offers, leading to the majority of online stores and businesses offering free shipping.

At Yale’s Center for Customer Insights, Ravi Dhar, likewise pointed out that free delivery is enticing for shoppers who dislike paying for certain services, even for items they value immensely. Shipping fees, in a way, produce psychological discomfort that hinders some shoppers from completing their purchases. It can be argued that free delivery helps shoppers rationalize their purchases.

How Amazon Free Shipping Started 

In the early 2000s, Amazon experimented with free shipping by offering free delivery to customers with orders over $100. In order to avoid subsidizing shipping fees for all customers, including those who are willing to pay for it, Amazon decided to segment their customers into two groups:

  • those who see shipping fees as an obstacle but are willing to wait a few days to receive their orders
  • those who are willing to pay for the shipping fee to receive their orders sooner

From thereon, free delivery became part and parcel of Amazon’s service. 

Different Types of Free Shipping

To help your online store or eCommerce site drive more revenue, it helps to know some of the commonly applied free shipping models. 

Program-Based: This type of free shipping is limited among consumers enrolled or qualified for a specific program, such as the loyalty program. If you are constrained to offer free delivery to all your customers, you can limit such offers to your loyal patrons. 

Time-Based: This means that sellers offer free shipping for a limited time or period. It might include offering free delivery during the holiday season or special days, like Valentine’s day. 

Geo-Specific: You may also offer free delivery based on the location of the customer. Your eCommerce platform may offer free shipment for customers situated within your city, state, country, or overseas. 

Item-Based: An item-based free delivery means offering free delivery for specific items in your inventory. This usually happens with items that have a high-profit margin and can cover the shipping cost.  

Amount-Based: A common practice among eCommerce sites is amount-based free shipping. Amazon, for example, offers free delivery for orders amounting to $25 or more for eligible items. 

Why Offer  Free Delivery?

  • Preferred Choice By Customers 

One of the benefits of offering free shipping in your eCommerce store is simple – customers love it. Free delivery has a subconscious effect on customers, making them more comfortable to shop in your online store.

eCommerce platforms offering free delivery are likewise perceived as customer-friendly websites. Hence, increasing their popularity and web traffic.

  • Sales & Revenue Increase 

Since online shoppers prefer free shipping, it typically attracts customers who are willing to proceed with their purchase transactions. This is especially true when one of the causes of cart abandonment is the extra shipping charge. 

With free delivery decreasing the chances of customers backing out from their shopping transactions, an increase in sales and revenue is likely. 

  • Cultivate Loyalty

One of the apparent impacts of free shipping to an online business is customer retention. Customers who are offered free delivery are likely to become repeat customers.

  • Competitive Advantage

One of the reasons why Amazon is popular among online shoppers is the free delivery they offer to customers. With free delivery as part of your marketing tool, you will gain a competitive advantage over those competitors who do not offer free shipping. 

Free Shipping Factors to Consider

Offering free delivery on your online store is highly advantageous for your business. However, you should also consider the following:

Profit Margin: Ensure that the level of discounted shipping does not diminish your profit margin. 

Average Order Value: Ensure that your free shipping offer increases the average order value. 

Customers’ Location: Be sure to consider the location of the customer before offering free shipping. Understand that shipping costs may vary depending on the location of the shopper. 

Product Dimension: Be sure to evaluate the size and dimensions of your products before considering free delivery. Remember that the larger and heavier the item, the higher the shipping cost you will incur. 

Amazon Shipping Template Guide

Amazon has provided simple steps on how to proceed with shipping template creation via the Amazon seller dashboard.  

amazon-free-shipping-template-guide

Amazon Seller Central: A screenshot of (cropped) Shipping templates guide; Retrieved April 30, 2021, From: https://amzn.to/3xyrVw1

 

Free Delivery Along With Other eCommerce Tools

Understanding the immense influence of free shipping on online shoppers’ purchasing behavior will hopefully inspire you to incorporate free shipping into your eCommerce business. 

However, although free shipping is a tested and proven marketing tool that can drive engagement and sales for your online business, be open to combining various marketing tools and techniques, including AI repricers, product research tools, keyword research tools, and feedback tools.    


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