Pros and Cons of Free Shipping: Sales Booster or Profit Destroyer?

Fetchr

Convincing people they are getting more for less (even when they are not) is a sales trick as old as time. Free shipping is one of the most popular ways to persuade online shoppers to buy your product. In fact, it slowly is becoming the norm, leaving many businesses wondering if they should switch to free delivery.

But is free shipping as effective as sellers think? Moreover, does increasing sales with free shipping necessarily mean increasing revenue and profit?

Let’s look into some pros and cons of taking product delivery charges upon yourself.

Pros of Free shipping

1. Everybody loves free stuff

People lose their mind over freebies — and science has proved it over and over again. When people are buying something, they calculate the risks against potential dissatisfaction with the product. Offering something for free eliminates that risk calculation — and sends people into a total frenzy.

Buy one, get one — a sales classic. (Source: Feedough)

This happened during an experiment where people were offered high-quality Lindt truffles at 15 cents per piece, or less-delicious Hershey’s Kisses at 1 cent per piece. More than two-thirds of the study participants opted for the Lindt truffles. But when the price of the Lindt truffles was decreased to 14 cents and the Hershey kisses were given free of charge, 69 percent of study participants chose the Hershey’s Kisses.

Free shipping does not eliminate all the buyer’s risk, because people still need to pay for the product. So, the logical question is: does avoiding product delivery charges have the same power as getting a free product?

2. Free shipping boosts sales

Numerous case studies have shown that free shipping positively affects sales.

  • According to Stitch Labs, retailers who always offer free shipping can directly increase revenue by 10 percent.
  • According to a 2014 Red Door Interactive case study, a free shipping offer had increased their orders by 90 percent.
  • Shoppers on Amazon often add almost twice as many products into their cart just to get free shipping.
  • According to Seller Zen, a $100 item with free shipping is more appealing to customers than an $85 item with a $15 delivery charge.
The blue sofa may welcome fewer people into its cozy arms, but the shipping was free! (Source: SellerZen)

Moreover, adding a free shipping icon to your product catalog or e-store is a great incentive for 93 percent of online shoppers, who say it encourages them to buy more. Naturally, big brands such as Amazon and Ebay emphasize no-cost delivery on their websites.

3. Free shipping creates repeat customers

It’s a given — if a customer is happy with the product and fast, seamless delivery, they are likely to buy from you again.

According to PwC’s Total Retail 2017, this kind of trust is a particularly important factor for Middle Eastern online shoppers. Moreover, attractive offers will convert about 48 percent of consumers into repeat customers. According to an Adobe study, customers making a second purchase are more likely to spend more money than first-time shoppers.

Fast and free shipping as a way to ensure repeat customers.

Being associated with stress- and cost-free delivery is a great way to boost your brand and make it recognizable. Amazon has built an entire business model around it, encouraging repeat customers to sign up for Amazon Prime service in exchange for free shipping and other perks.

4. Competition

The customer decision process usually is not a linear one, especially when it comes to online shopping. Around 73 percent of online shoppers browse e-stores with a specific product on their mind.

Online buyers quite literally keep tabs on you and your competitors, making it easy to compare prices, features, and perks.

Image description: Free shipping and free returns are the staples of Souq’s business model. Souq is among the most prominent e-commerce platforms in the Middle East. (Source: Istizada)

Free shipping significantly affects your appeal in the eyes of an indecisive shopper. This is particularly important in the Middle East, where the last mile delivery is one of the greatest challenges in the e-commerce sector.

Offering free shipping to the customer’s doorstep is a great way to get ahead while the Middle Eastern online shopping sector is still in its early growth phase.

Cons of Free Shipping

1. Difficult to Calculate Profit

While free shipping is a great trick to increase your sales and customer retention, this does not necessarily lead to increased revenue or profit.

Product delivery charges depend on a wide range of factors, including the type of item, its size and weight, and the customer’s location. This means that shipping costs can vary greatly, and in some cases even surpass the price of the product.

The decision to offer free delivery should not be made lightly. There are several ways to make free shipping profitable for your business.

  • Run split tests and compare conversion with and without a free shipping offer.
  • Establish the minimum order value required for free shipping, and test the improvement in margin.
  • Set restrictions by offering free shipping only on select products

Free shipping also should come with a carefully crafted return policy. Serial returners can take advantage of free returns and essentially transform your product into a freebie (for them).

2. Slow delivery

Express delivery usually is not viable for sellers with a free shipping policy. If you offer standard delivery and your customer across the world really needs that dress in two days — you are in for a very dissatisfied customer who won’t buy from you again.

This is why free shipping should be advertised and explained honestly. For example, you can offer free delivery on standard shipping. In the checkout box, you can inform buyers about the delivery time and charges for express shipping.

Conclusion

In general, free shipping is a good business practice that will allow your business to increase sales and build a brand. However, it comes with a serious set of considerations that apply to each business individually.

Free shipping is a good choice for businesses selling small and light products that do not require special shipping methods. Larger, more robust, and sensitive items, however, incur significant product delivery charges. That is an undertaking that is profitable only for e-commerce industry giants such as Amazon and eBay.

Another solution for small and mid-size businesses that want to offer free shipping and remain profitable is a partnership with a trustworthy, dedicated logistics company.


We are Fetchr; a company specialized in e-fulfillment. We help e-commerce entrepreneurs grow their business in the Middle East. Let’s make it happen! One box at a time. Learn more here.

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This blog is intended for informational purposes only, and should not be considered business or legal advice. MENA 360 DWC-LLC (Fetchr) will not be held liable for the use, non-use or misapplication of this information, lost profits, personal or business interruption, or any other loss.

Fetchr

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Fetchr

We’re on a mission to build the next generation of e-commerce entrepreneurs. Let’s make it happen. One box at a time!

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