Successfully employing free shipping to increase conversion rates

By:
Rakuten Super Logistics

To compete with brick-and-mortar, it’s essential that online retailers reduce the number of customers who ready to buy something but fail to complete their cart transaction when they see the shipping costs. A recent analysis of cart-abandonment studies found that 55% of respondents reported that the “extra” costs, mainly shipping, were too high.

In addition, 21% cited the inability to calculate the costs of an order up-front as a reason they abandoned their carts. Offering free shipping is one way to allay fears about the total cost of making a purchase online versus in-store, making it a valuable strategy for increasing conversion rates.

Following the example of Amazon

As the popularity of Amazon Prime has shown, customers love free shipping because it makes them feel they’re getting a good deal. Offering free shipping is a good way to build a loyal customer base that will stick with a business even if it’s forced to raise prices down the road.

In fact, Amazon recently announced it would spend $800 million to cut its delivery window in half, to one day, raising the bar for other e-retailers. That kind of efficiency is possible because of Amazon’s extensive shipping network, which includes more than 100 fulfillment centers across the United States.

How to do free shipping right

While employing free shipping to increase conversion rates is almost guaranteed to be successful because it makes it cheaper to buy online than in-store, it can take a substantial bite out of profit margins if it isn’t implemented properly.

How can a retailer offer free shipping and still realize a profit? What strategies can sellers employ to stay competitive with Amazon? Here are a few strategies.

Run A/B tests

When implementing free shipping, be sure to run tests to strike the necessary balance between attracting customers and mitigating costs. The first step is to establish a “baseline” to determine how much free shipping will raise conversion rates.

Create two versions of the company site and add a “free shipping” banner to the header of one as an easy way to determine how big an increase in business can be expected if you offer free shipping.

Establish a minimum threshold

The next step is to find the minimum threshold at which it becomes profitable to offer free shipping. That may involve a lot of testing, but it will be well worth it in the end.

Establish a minimum threshold that’s high enough to entice customers to spend more than they otherwise would, yet low enough for them to feel they’re saving money. That’s the key to making free shipping profitable. When a minimum-purchase threshold is established, it “forces” customers to spend more money to take advantage of free shipping.

Determine where free shipping is profitable

Another way to keep free shipping from cutting into profits is to determine where it’s profitable, based on the location of the business. Weight restrictions may also play a role in determining how to integrate free shipping into a profitable marketing strategy.

First, the business must assess some key factors. Is the size and weight of products relatively uniform, or are there large variations? Are most orders from domestic customers, or are many of them in other countries?

If the size of the products varies greatly, the retailer should focus on getting accurate measurements for the smallest and the largest 20% of products so it can get accurate quotes from shipping companies. Once it has an accurate idea of the shipping costs, the retailer can determine which products and shipping zones should be included in the attempt to offer free shipping.

Consider small across-the-board price hikes

Raising prices across the board is another option for defraying the cost of offering free shipping. If the increase is relatively small and is applied to all of the site’s products, customers may not even notice it, or they may feel that free shipping offsets it by lowering the total cost of items compared with shopping locally.

Optimize shipping logistics

One easy way to minimize costs is to partner with a shipping logistics company such as Rakuten Super Logistics, which can help trim shipping costs and minimize the “bite” of offering free shipping in return for higher conversion rates. The experts at Rakuten can help determine where products should be located so shipping costs can be minimized. Our experts can help set up the logistics of a free-shipping strategy and help you determine whether such an program will increase conversion rates to your store.

With a network of shipping fulfillment centers across the U.S., Rakuten can help streamline the shipping process, cutting the costs of offering free shipping. Contact the experts today to set up a plan.