In February we tested the theory of the impact of Free Shipping on eCommerce Conversion Rate with a couple of our willing online retail partners.
We chose two very different businesses:
- One with small items that could generally be shipped in a 5kg postage bag - let's call them Small Items Co; and
- One with large items that would typically take a truck to ship - we'll call them Large Items Co.
First of all, if you're not sure why eCommerce Conversion Rate is important head back and read a couple of words on what eCommerce conversion rate is, and why it matters to online retailers and their Digital Marketing partners (that's us!).
Free Shipping: How Customers React
Small Items Co was doing $15 flat-rate shipping Australia-wide. Unfortunately, they had a few competitors popping up, including some of their big-name wholesalers now selling direct to consumers online, offering Free Shipping over $X.
Small Items Co is the leader in Australia for their niche with the largest range, but selling mostly items that people would prefer to try on meant their eCommerce conversion rate could be better.
Large Items Co is one of many online retailers in a very competitive and not very niche area. Selling bulky items means shipping rate is a massive barrier to their eCommerce Conversion Rate and could mean the difference between making a sale, or not making a sale.
Large Items Co already had one of the best shipping rates in the industry at $25 flat-rate shipping, but as we've learned from Amazon's case study in France any barrier to shipping cost (even $1!) can more than halve eCommerce conversion rates.
The Strategy - A Staged Approach
After looking at the client's perspective on Free Shipping
and taking into account profit margins to ensure we weren't simply increasing conversion rate at the expense of their bottom line, we went ahead an implemented "Free Freight February".
Rolling out free shipping for a limited time meant that these businesses could dip their toe in the water of the Free Shipping world, taste the results, and then make an informed decision. It also meant that we weren't training customers to expect Free Shipping forever.
As always with Digital Marketing, and as is our motto at Devote Digital, it's important to start small, optimise, and then scale.
So as not to disrupt the data, Devote didn't run any paid campaigns or highlight the Free Shipping offer in any way above and beyond how shipping rates would normally be advertised.
For example, wherever the previous flat-rate shipping was advertised we simply replaced with "Free Freight February".
The Results of Free Shipping on eCommerce Conversion Rate
The results rolled in, and while we always knew that in theory Free Shipping would effect eCommerce Conversion Rate, even we were surprised by the immediate impact.
Small Items Co saw a 36.05% increase in eCommerce conversion rate.
Large Items Co saw a massive 62.86% increase in eCommerce conversion rate.
The results they don't tell you about in the studies
As you can see, it wasn't all upside though.
Small Items Co in particular saw a decrease of overall revenue and Average Order Value as a result of Free Shipping due to people purchasing smaller and cheaper items, while taking advantage of the Free Shipping offer. Sometimes, removing that barrier attracts customers who spend less.
Small Items Co have since decided to meet their competitors on the playing field, and offer Free Freight on orders over $50. This will go some way to avoiding a high turnover of product, for a low bottom line result. Sometimes, just selling more doesn't equal better profits.
Large Items Co however saw increases across the board, and have since decided that Free Shipping will be the norm for their business.
They've negotiated better shipping rates with their freight companies and better margins with their suppliers, in line with their new increased volumes. Because at the end of the day, in their industry, selling more product means everyone wins!
Our Long-Term View
Our long-term view of Free Shipping? Eventually, everyone will have to come to the table with Free Shipping to meet consumer expectations. In our opinion, like any Digital strategy, those businesses who are able to always stay one step ahead of their competitors will win.
In the short-term they'll win with an increased number of orders, and a decrease in costs per sale. But with the right Digital recall strategy, they'll reap the long-term benefits of increased purchase frequency and increased lifetime value of their customers.