Is Free Shipping More Attractive Than A Dollar Discount?

Plenty of studies suggest customers want demand free shipping:

• 61% online shoppers prefer to shop with a retailer that offers free shipping than one that doesn’t. — Forrester Research (2007)
• 43% of shoppers abandon their shopping carts because of unexpectedly high shipping charges. — PayPal, comScore (2008)
• 60% claim free shipping is a reason they are more likely to shop online. — Harris Interactive (2008)
• 90% believe free shipping offers would entice them to spend more online. — The Conference Board (2008)

David Bell, marketing professor at the Wharton School even observed that “For whatever reason, a free shipping offer that saves a customer $6.99 is more appealing to many than a discount that cuts the purchase price by $10.”

That’s not rational, is it?

I have a couple theories why free shipping is so important to customers.

“I Win” Theory

It could be the desire to win is what draws shoppers like those Professor Bell observed to the online channel. The ability to compare prices, find the lowest prices, skip parking lots and lineups — there’s a payoff vs. shopping in a store. The shipping charge negates that advantage – it effectively raises the total price paid and is like a “convenience tax.” A dollar discount is easy enough to find in-store, so finding one online doesn’t justify the shipping cost.

The customer thinks “The product is already marked up, it’s easy for the retailer to give a little on price. But footing the shipping bill costs the retailer something, so I win.”

Perceived Value Theory

Last year I wrote a post Are Dollar Discounts the Worst Incentives? which covered something we discussed at the Marketing Experiments Landing Page Optimization Workshop in Santa Monica. Dr. Flint McGlaughlin suggests dollar discounts devalue product, and the perceived value of the incentive can never exceed $X (where X is the amount of the discount). Whereas the value of free shipping could be much higher depending on what the customer imagines shipping costs would be.

If the preference for free shipping is stronger than other incentives for your customers, you may consider switching your email and affiliate promotions accordingly (hint, run a split test to find out).

If you’re not able to offer free shipping, one tactic to be careful with is showing a bundled price that includes shipping. A 1998 study by Morwitz, Greenleaf and Johnson tested “$82.90 including shipping and handling” against “$69.95 plus $12.95 shipping and handling”. They found consumers were less likely to recall the full total cost and were more likely to remember the product’s cost. Unbundled pricing had more demand.

On the flip-side, a 2005 study by Schindler, Morrin and Bechwati discovered customers who comparison shop had a higher degree of “shipping charge skepticism” and actually preferred the bundled price.

Moral of the story? Test.

Related Articles

27 Responses to “Is Free Shipping More Attractive Than A Dollar Discount?”

  1. Luke says:

    As usual you have provided food for thought and given me more to try. Thanks Linda!

    The problem is that when shipping internationally from Australia it can end up being quite expensive, when not standard air mail.

    What is the consensus on reaching a dollar amount to get free freight? i.e. Spend $250 and get free shipping.

  2. That makes sense. Free shipping is nice to see when you go to check out and buy your product. A ten dollar shipping charge for an item that costs $30 is sometimes tough to swallow.

  3. PetsRight says:

    “That makes sense. Free shipping is nice to see when you go to check out and buy your product.”

    But the question is how do you eat the cost? Some add it to the product but if a person does a search and your price for the same object is higher than the next store… will you even get the click thru?

  4. I totally understand. I offer flat fee shipping so that customers know what they are getting into and free shipping for orders over $75.

    But PetsRight above is right, you are definitely eating a lot of the cost.

  5. I personally think the main reason free shipping is so important for online purchases is that in the visitor’s mind, the comparison is buying online vs. buying from a brick and mortar store.

    You obviously aren’t paying for shipping from a physical store, so ANY shipping fee makes them think twice.

  6. PetsRight says:

    @Ophir,
    I definitely understand that but how do the retailers eat the cost? I know that can’t afford to, especially when dealing with dropshippers.

  7. Dan Auns says:

    Fantastic question. (Full disclosure, I have my http://www.Sitebrand.com hat on for this response)

    We have seen time and again, that the spirit of this type of test (That is; to determine what sort of incentive has the most meaningful impact on the goal outcomes of the business) provides awesome insight that can and should be applied across the business.

    Moreover, testing percent discounts verses dollar discounts can provide fascinating deviations as well – especially when tactically applied to different segments of traffic.

    We have found that huge wins can be made, that counter the expected outcomes when testing softer brand or value based messaging vs. harder % off or dollar discounts….. For example reinforcing brand to new visitors (i.e. “Thousands of satisfied customers, click here to read our testimonials” or “Click for our top reviewed products”) typically provides a better outcome than costly $ or % based incentives, which in turn returns better overall profitability.

    Thank you Linda, we wish more online stakeholders would question their business in this way.

    Cheers!!

    D.

  8. [...] to the bottom. And while value adds have been around for a long time, Linda Bustos explains why value adds like free shipping work so well. Using these reasons, can you think of other creative ways to get customers to [...]

  9. @Luke re: free shipping thresholds, we’ve tested $60 and $100 free shipping promotions on the Olympic Store (http://www.vancouver2010.com/store/) and we found no difference in conversion rate, so we now offer it only after $100. This can vary by retailer/industry/product mix so good idea to test.

    @Petsright: yes, free shipping has its own cost, some retailers view the free shipping as their marketing program (instead of spending money on banner ads or other marketing activities). And that’s also why free shipping with conditions is more popular than free-for-all.

    If you use drop shippers you might be able to negotiate shipping promotions directly with them to move more of their product.

  10. Jestep says:

    The best place to look at this is ebay. You’ll find people selling a $50 product and then shipping it for $50. You’ll also find sellers shipping for free with the same product priced at $100.

    This is an extreme example, but should convey the message of how people react to the way a set of prices is presented. With the higher shipping price, they feel as if they are being cheated, or deceived, even if the price is blatantly advertised. We’ve found that people react similarly even if the shipping price is completely reasonable. It’s just the idea that we’re adding an additional charge to get the product to you, that turns many people off.

    On the other hand the free shipping conveys a sense of truth, even if the end price is the same.

    Anyway, I definitely have to agree that free shipping is more effective than a comparable discount from the total. At least in every test we’ve done with it.

    Another thing that is important to understand, is that if you switch to a completely free or mostly free shipping model, it can be very difficult to return to a paid shipping model. This is especially true if you get a lot of repeat customers. If they get free shipping once, they may not shop again if they don’t get free shipping every time.

    • That is so funny Jestep, I bought an screen protector on ebay yesterday and the same seller had three listings, one with free shipping, one cheaper with a shipping charge, and the 3rd even cheaper with higher shipping charge. Guess which one I selected – the free shipping one! They are all the same price, but something made it feel easier to just take the free shipping one.

    • CEB says:

      I realize this comment was posted years ago and is likely long past the furthest of memories, but here’s a thought on eBay product and shipping pricing.

      I believe their policy has since changed, but eBay use to only charge a commission on the final sales price of a product and not the shipping charge.

      Say the commission rate was 10% and the product sold for $100.00 USD with $20.00 USD shipping. The seller would pay $10.00 USD.

      If the product sold for $120.00 USD and free shipping. The seller would pay $12.00 USD.

      If the product sold for $10.00 USD and $110.00 USD shipping. The seller would pay $1.00 USD.

      The cost to the customer was $120.00 USD for all three sales, but the cost to the seller ranged from $1.00 USD to $12.00 USD.

      These numbers were just used as an example. I realize fees and commissions vary by product and I believe eBay’s policy of not pulling on shipping has changed.

  11. Free shipping is a big pull and also simplifies your whole site and online value proposition.

    But don’t forget to think through how to deal with returns and product swaps as well.

  12. That is so funny Jestep.Thanks a lot.

  13. MGA says:

    Since we started to promote free ground shipping, it increased our local sales at some percentage. However, offering free shipping for international customers is semi-impossible since the shipping is very expensive for other countries. Even when you want to send a package to Hawaii, it doubles up. however, i accept the psychological affects of the free shipping on customer; and as long as you can afford it, it is a good way of converting leads into actual sales.

  14. Benny says:

    One aspect i did not see mention of is returns. If a product cost, say $20 and shipping cost is $5 and you sell it for $25 (free shipping without eating the cost or eating the cost), when the customer returns the product you refunds the cost including the shipping! You can have stocking charges for returns or limit them. What are your thought and experience on this?

    Also, I have a dilemma here. I want to sell a product who’s MSRP is $20. It’s a fairly large product and costs are $6 – $12 depends on the location (the 48 states only). How do you go about such situation? The product is unique and new and there’s no set price for it, but we thought the $20 is the right price. Once thing i thought about was setting the MSRP price to $25 or $30 and say free shipping or shipping included. How would you go about it?

  15. @MGA, yes as an international shopper (Canadian) I rarely see a US site offer free international shipping unless it’s a tiny, lightweight item. I’ve never seen free 2 way shipping internationally, for good reason.

    @Benny, You bring up very good points.

    You could try the bundled price approach. The big idea of the article was the psychological effect of free shipping, even when the price of the item is higher (similar to how hotels with higher nightly rates but free wifi are more attractive, I can’t seem to locate that study online). So if the “$89.98 incl. shipping and taxes” is a better offer than $79.99 + $9.99 shipping in the customer’s mind, then you can refund only the item price for a refund, and require them to foot the bill for shipping back to you. I’d look at how your competitors are handling it too.

    For your second issue, do you have an idea of demand by region? Depending on the volume you do with this product, you could send bulk shipments to more local fulfillment houses (I understand this depends on your fulfillment arrangements and is not that simple and carries extra costs if the demand is mis-estimated).

    Another thing you “can” do with targeted selling (which I will mention in our webinar later this month) is show different prices to different users based on geo-location. Geo-location like Quova http://www.quova.com/ can do this. If customer is in X territory, show Y price, for example. That is, if the shipping costs are predictable for these regions.

    Setting the actual MSRP is a bit trickier than shipping – are you using shopping comparison engines? You mentioned the product is unique, who else sells it? If there’s a lot of visibility for the product, you’ll need to be more conscious of pricing relative to other seller options.

    If there’s a competitor selling on Amazon you might even want to take advantage of Fulfillment by Amazon program and sell through Amazon also. You send them a huge shipment and they will fulfill orders placed through their marketplace for you, leveraging their uber-efficient system. This can be in addition to your own web channel.

  16. Jim says:

    My store offers free shipping worldwide http://www.incastreasures.com what I need to appear in your website or start a drop shipping program.

    I look forward hearing from you

    Best Regards

  17. we have proved that, free shipping is more alluring, just try.

  18. [...] with your audience? If we are to believe that free shipping is a necessity or that it’s more appealing than a dollar discount, the answer is: likely. Would attaching a minimum order requirement like Coach does below impede [...]

  19. [...] June Is Free Shipping More Attractive Than A Dollar Discount? [...]

  20. [...] know free shipping is the darling of promotions, and many online shoppers refuse to purchase an item that tacks on a shipping charge. But many [...]

  21. [...] shipping is great. It can drive sales and give a company a huge competitive advantage. I’ve experimented on ebay many times with offering the same product at different prices and [...]

  22. [...] shipping is great. It can drive sales and give a company a huge competitive advantage. I’ve experimented on ebay many times with offering the same product at different prices and [...]

  23. [...] shipping is great. It can drive sales and give a company a huge competitive advantage. I’ve experimented on ebay many times with offering the same product at different prices and [...]

  24. [...] shipping is great. It can drive sales and give a company a huge competitive advantage. I’ve experimented on ebay many times with offering the same product at different prices and [...]

  25. [...] shipping is great. It can drive sales and give a company a huge competitive advantage. I’ve experimented on ebay many times with offering the same product at different prices and [...]

Leave a Reply

© 2014 Get Elastic Ecommerce Blog. All rights reserved. Site Admin · Entries RSS · Comments RSS