December 14, 2009
Online sellers, what last minute shipping promotions will you use this holiday?>
Endless arguments can be made about whether a small retailer should offer shipping promotions or not; suffice it to say, if you think one would help your business you should consider it. Shipping promotions drive conversions as they can address the main differences between online and offline — shipping cost and time to buyer gratification. Buyers want products fast and preferably free, so if you can bring the following marketing text to the front of your website “fast and free shipping” then you can increase conversions.
The important question is which shipping promotion is right for your business and will honestly allow you to market “fast and free” without killing your margin. What are some of the “free” shipping options available? Which one will work best with your business? How are you going to communicate “fast and free” and make it drive the right sales?
Types of Shipping promotions
Take a look around and you will see all sorts of shipping promotions. Many are based on some type of “membership” with the website or association. I personally hate having to register if I want to buy something from a new merchant, so for this article let's think about new customer acquisition.
The purpose of this list is not to say which one is better than another; rather, which one may work best for you and your business.
While there are countless permutations, below are six options I”ve seen widely employed.
1. Free shipping on everything in stock.
2. Free shipping on orders over a certain amount.
3. Flat rate shipping with an expedited shipping special offer.
4. Flat rate shipping on the whole order. “One price. Unlimited items.”
5. Tiered flat rate shipping based on order value.
6. Free shipping to certain regions.
Notice some of these address “free” and some address “fast”. If you normally include a “handling” cost in addition to shipping you have another item that you can play with for discounts.
Many of these don't give away all shipping revenue; the customer still has some costs. You should be able to quickly test these options in your shopping cart or order taking software.
What shipping promotion is right for your business?
If you have time to test more than one, you will be doing yourself a favor. Depending on your daily or weekly average order volume, you can offer some “special” offers tied around shipping and see if your conversion rate increases. Pay attention to the cart abandonment rate when the buyers see your shipping costs.
Who is your competition? Are your products unique or are you the exclusive regional seller of a product line? If your customers can get your products relatively easily at a local brick-and-mortar, your offer may need to be more substantial to address both “fast” and “free”. If you have more pricing flexibility, you can test free shipping and simply mark up your product costs to cover the difference.
Look at your average product margins. Low margin products are hard to justify free shipping on, unless the total cart checkout value is high. So for low margin products, maybe just offer free shipping for orders over “X” amount.
Where are your products shipping from? If your warehouse is far away from most of your buyers, then it will cost you more money to get your products the “last mile.” Flat rate shipping or free shipping to select regions may be your best bet.
Most carriers use pricing based on package dimensions/volume and weight. So if your products are big, bulky or just heavy you really need to look at margin before you offer free shipping on the whole catalog.
If you have bulky and heavy products and your warehouse is not strategically located close to buyers, do yourself a favor and look at optimizing your best selling products using outsourced order fulfillment from a company like Shipwire. By moving products closer to your end-buyer you can drastically reduce the cost of parcel shipping. Even if your customers pay for shipping, you need to drive this cost down because it decreases conversions. Here is a link to a shipping cost calculator that demonstrates how much you can save by being smart about product placement.
How to communicate the offer
Be up front and clear. If you can offer some type of free shipping option for certain orders then definitely market “free shipping.” If you offer some type of expedited shipping option then specifically market “free expedited shipping”.
If you want to inspire your current customers to return, target a coupon to them. If you want your current customers to invite others to shop from you give them a discount offer and a chance to pass on the offer to a friend or two as thanks for their continued business.
If you have read this whole article and don't have time to test multiple options perhaps just try “free domestic shipping on orders over “X” amount”. Choose the amount by looking at what you want the average value of each checked out order to be. This offer allows you to market “free” and hopefully increase your average order amount.