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.