The Power of Free Shipping Offers

The rise of online shopping has created a far-reaching, ever-expanding marketing and sales channel for retailers of all kinds. The channel comes with a catch, though: Unless the item or service can be electronically transmitted, getting an online order into a customer’s hands costs more than it would for an in-store purchase. Shipping charges have therefore become an entrenched part of the online transaction lexicon.

While there’s a sensible reason for charging that fee, no one likes to knowingly pay extra for something. Even worse for retailers, many online shoppers consider shipping costs a deal-breaker, which is why free shipping is the most popular online offer yet measured. More than any other factor, the presence or absence of a free shipping offer can make or break a sale; it’s also the single best way to improve someone’s online shopping experience. In fact, shoppers prefer free to fast delivery almost 9-to-1 when they shop online for gifts — and a similar ratio will be more likely to shop online if they know they’ll get free shipping.

Just as importantly (for retailers), a promise of free delivery is two times more effective than a percent-off deal in converting sales. When combined with a minimum purchase threshold, a free shipping offer is also a great way to increase spending among customers — in some cases, by 50% or more. What’s more, one experiment found that if shoppers are offered either free shipping or a free item, they’re four to five times more likely to spend $5, in total, to get the item than they are to pay $2.50 for the item and another $2.50 for shipping.

That’s the power of free shipping: It makes online consumers act in ways that seemingly defy logic. It’s not just the “shipping” part of the deal that drives such behavior, though. Take another look at that experiment: An offer of “either free shipping or a free item” closed between four and five times more $5 sales than an offer that split the $5 cost evenly between the item and the shipping fee. It was the same total price for the exact same item, but one offer included the word “free,” and the other one didn’t.

Indeed, “free” offers can cause people to do things that might seem irrational to outside observers:

• Fans will battle for free t-shirts shot into the stands during sporting events — even though the t-shirts are typically worth far less than the average game ticket.
• People will participate in lengthy telephone surveys just to receive a free movie pass.
• Consumers will sign up for a “no annual fee” credit card that charges exorbitant interest rates compared to cards that charge a nominal annual fee.
• Grocery shoppers will wait patiently in line for a tiny, free sample of a new food or beverage.

Clearly, the promise of “something for nothing” is a powerful lure — so powerful that customers will gladly end up paying for it. In 2010, for example, 7-Eleven celebrated its (unofficial) 7/11 birthday by giving away 4.5 million Slurpees across the country, no purchase or coupon required, no questions asked, and no limit per customer. People heard or saw “free,” gravitated to the store, and increased Slurpees sales at 7-Eleven by 38% that day. Plus, that figure doesn’t take into account the incremental revenue from sales of other merchandise generated by that extra traffic.

The magic of a “free” offer is that it creates a reciprocal effect among people who accept it. Studies of in-store sampling effects have shown that customers who received something for nothing often feel compelled to return the favor somehow. They’re more likely to buy the product they just got for free, buy other items from the retailer, or both; they’re also more likely to develop long-term bonds with the brand they’ve just sampled. The same magic applies to online shopping. People will add items to their cart that they don’t need (or want) simply to qualify for free shipping — even when the cost of the extra items far exceeds the shipping charge they’re trying to avoid.

The real beauty of a “free shipping” offer, therefore, is that it combines the power of satisfying a universal want (i.e., something for nothing) with the power of satisfying a universal demand (i.e., free deliveries) — to the benefit of both the customer and the retailer.

Tom Caporaso is the CEO of Clarus Commerce, a recognized leader in e-commerce and subscription commerce solutions. Among its various properties, Clarus Commerce powers FreeShipping.com, the pioneer of the pre-paid shipping and cashback movement. ClarusCommerce also customizes and manages programs, such as Return Saver, which it co-developed with FedEx, and 2-Day Shipping by MasterCard, for clients across a wide range of industries.