The Pros And Cons Of Free Shipping


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| October 15, 2012 | 0 Comments

By David Hall, Vice President Sales and Marketing, Cutting-Edge Solutions

For many online shoppers, a free-shipping offer is the holy grail of great deals. Forget 10 percent off an item or a coupon code for an instant or future discount: Free shipping is what makes people click the “Add to Cart” button.

Sounds like a great deal, doesn’t it? Well, not so fast. The truth of the matter is that somebody is paying for shipping. Either the retailer is eating the cost or the customer is paying a higher price. In many cases, it’s a little of both.

Maybe you’ve been wrestling with this concept and are uncertain whether to incorporate free shipping into your Web site marketing plan. Many online retailers are hesitant to add on another expense that eats away at their bottom line. Some have their shipping costs set to allow a small profit. Many feel that decreasing this profit will have a negative effect on their customer support or force a reduction of other services.

Others feel that free shipping is expected by online shoppers and, thus, feel forced into offering it to even the playing field and remain competitive.

This ongoing debate is one of the most aggravating and frustrating topics with which online retailers wrestle. To help determine the right path for your business, here is a closer look at the pros and cons of free shipping.

Pros

  • The customer feels more confident by knowing the total price he or she will pay up-front by picking the free-shipping method.
  • Can help to build extra visibility of the Web site.
  • Less abandoned shopping carts.
  • Advertising free shipping might generate more traffic to the Web site.
  • Could help eBay sellers earn higher rankings due to eBay’s preferential placement algorithm.
  • Can help build referrals through word of mouth and social media praise.

Cons

  • Product prices will be higher.
  • Added expense for the retailer and might cause a reduction of other services.
  • Free shipping stops customers from coming into the store and eliminates impulse buys.
  • Shoppers might not enter the checkout stage to see what shipping and final costs would be.

Should online retailers try to compete with Web sites that offer free shipping? Debra Ellis, President at Wilson & Ellis Consulting, doesn’t think so. “Merchants are already reticent to invest in improving customer service, because operations are considered an expense,” she said. Retailers who offer free shipping usually cut back on other services to cover the costs. “Shipping income and costs are typically allocated to the operational budget. In the past, an efficient operation could be a profit center, but not anymore,” she added.

We all realize that there is no such thing as free shipping. It’s the second-largest cost for most retailers, with labor being number one. Although offering it might lead to higher Web site traffic, it’s important to remember that the rest of a positive buying experience has to be securely in place. When a consumer sees that free shipping is available, he or she fully expects to proceed through the shopping cart with no surprises. Some online retailers add a handling charge to the order. This ploy is a surefire way for consumers to abandon the shopping cart. When you advertise free shipping on the Web site, also state “no handling charges.” This will add credibility from the outset of the sale.

It’s a good idea to add a page to the Web site that clearly explains your free-shipping policy. You can add comments regarding heavy and oversized items, detail any minimum requirements to qualify for the offer and explain your policy regarding returns. Be careful…some customers who make purchases with free shipping might expect you to cover the shipping costs for returns. Clearly state your policy regarding returns and who pays for the shipping back.

Strategies To Consider
Many retailers are wary to offer free shipping but realize that they might be missing opportunities. Here are a few strategies to consider:

  • Set a higher qualifying minimum order. This will allow you to make additional profit that can cover the costs.
  • Only include free shipping on selected items. This is a great way to benefit from Web searches and still be able to offer the extra service.
  • Work with your vendors to get special pricing on selected products or brands and promote them as free-shipping items on your Web site.
  • Offer free shipping at select times of the year and use specific deadlines. For example, “Place your holiday order before December 1 and get free shipping on your entire order!”
  • Do not offer the free-shipping promo too often. It would “train” your customers to wait until the next promo is running to make their purchases.
  • Stay on top of all communications regarding the status of the order, tracking information, etc. Customers appreciate the extra service, and it will save you time and labor costs

Start A Free-Shipping Club
Free-shipping clubs require members to pay money upfront to receive free shipping on their orders for the year or designated period of time. Although this might sound suspicious or be perceived as another way to milk more money out of customers, SmartMon ey.com says “not so fast!” Believe it or not, these clubs can be a good deal.

The consumer will have to weigh the benefits and determine if the membership makes financial sense for his or her purchases. Many large online retailers offer some sort of free-shipping club membership and the cost averages $79.95 per year. Besides the free shipping, sites offer members exclusive deals and incentives that they wouldn’t get otherwise. Promoting the added value of extra benefits will justify the price of the membership and help you sign people up.

The Bottom Line
Shipping is expensive and somebody is going to pay for it. Free shipping can build traffic and repeat business if costs can be managed. Establishing a free-shipping club could be the answer to build sales in a controlled environment. After you do the math, I’m sure you’ll see that this is an opportunity for you to win in the free-shipping game.

David Hall is Vice President – Sales & Marketing for Cutting-Edge Solutions. Its eCommerce products, The Generator and Pro-Active Websites, are utilized by leading vendors and retailers within the music products industry. Contact him at dhall@pro-activewebsites.com.