In January 2002 Amazon announced the trial of its free super saver shipping program. The goal of the program was to offer free shipping to customers who were willing to wait a few extra days before their product arrival.
To qualify for the offer customers were required to place orders above $99 and be willing to wait a bit longer for their product arrival.
The program was so successful that in a span of a few months, Amazon dropped the qualifying order amount from $99 to $49, and finally to $25.
This simple (maybe not so simple) experiment helped amazon and other online retailers understand customer priorities better. While some customers are willing to pay more for faster delivery, some are willing to wait longer times to get free shipping.
Free shipping has since become a competitive necessity and a major tool businesses use to increase sales, average order value and drive customer loyalty.
But why should your business offer free shipping?
According to a recent survey, 79% of US Customers said that free shipping will make them more likely to shop online. Offering free shipping for your products can help your business in the following ways:
Benefits of Offering free shipping
May Boost Sales and Revenue
Offering free shipping for your product may help boost your business sales and revenue. This works best for businesses that set a qualifying order amount because it leads to larger orders. In fact, 58% of online shoppers reported adding items to their shopping cart to qualify for free shipping.
May Improve Customer Loyalty
Customers love free shipping! In fact, 93% of customers prefer free shipping to any other discount. Offering free shipping for your products helps you retain customers who shop only from retailers that offer free shipping.
Helps Maintain Competitive Advantage
Offering free shipping for your products may not necessarily give you a competitive advantage but it helps you remain competitive with similar businesses that are also offering free shipping.
Reduces Cart Abandonment
Adding extra cost (shipping cost) at Checkout has been cited as the most common reason for cart abandonment. Offering free shipping gives customers the illusion of getting something for nothing which can also be effective in getting customers to overcome shopping guilt.
Before we move on to How to build your winning free shipping policy, it is important to note that the ability to offer free shipping comes at a cost, and it is important to know some of the downfalls associated with free shipping before stamping the “Free Shipping” badge on your store.
Downfalls of Free Shipping
To keep costs low, online retailers offering free shipping are compelled to go for the cheapest shipping options available. This makes delivery slow as the cheapest options are often the slowest.
Increases Product Price
Increasing prices of products site-wide to cover shipping expenses is a risky decision especially for small businesses as they do not have the economics of scale that larger businesses have. Spreading the shipping expense may result in products being over-priced which could be a turn-off for sensitive customers.
While free shipping may help you get more customers, it also presents the danger of converting customers who are not yet at the right stage in the customer purchase funnel. Converting customers who are not yet sure if they need your product can lead to increased returns, which you will have to pay for.
Things to Consider Before Creating Your Business’ Free Shipping Policy
Study Your Competitors’ Terms
Understudying your competitors’ moves can provide invaluable insights on what works (and what doesn’t) in your industry.
Does any of your competitors offer free shipping? What are their policies?
Studying your winning competitors’ shipping policy can give you insights and also serve as a template on how best to build your free shipping policy.
Determine Your Minimum Order Amount
It is important to determine the minimum order amount that qualifies for free shipping like Amazon did when they tried their Free Super Saver Shipping Program. This works in two ways; it ensures that your business remains profitable and it also encourages customers to add more items to their carts to qualify for free shipping.
How to Create your winning free shipping policy
Every business needs to have its free shipping policy that bears the terms and conditions that protect the interest of the business as well as that of the customers.
When creating your free shipping policy, it is important to have the customer’s interest at heart. It may be tempting to offer the least possible perks but it pays to consider what your customers would want to see in your free shipping policy. This can help you strike that delicate balance between great customer service and profitability.
It is important to make sure that your shipping policy is clear and addresses the fears of your customers. And finally, study your competitors’ free delivery policy and improve on what they’re currently offering.
Free shipping, though a huge risk, is an overall positive strategy. Incorporating it into your go-to-market strategy can yield great results when you get the rules of engagement (policies) right.
And remember, free shipping is part of your customer service. Getting your policy right can be a boost to your overall customer service effort.
There you have it: How to Create a Winning Free Shipping Policy For Your Business.
What are your thoughts on free shipping?