Perception is Everything: Free Shipping Doesn’t Have to Drain Profits

Offering free shipping does not have to cost a fortune when embedded into the initial listing price. In fact, this approach can be an effective way to increase sales without spending any extra at all. When customers see “free shipping,” they become more inclined to buy. To win over these customers without breaking the bank, sellers can embed shipping costs into listing prices and take simple steps to minimize those costs to further boost profitability.

Why sellers should consider offering free shipping

Today, customers increasingly expect free shipping options and will likely choose sellers that offer free shipping when the delivery date is similar to that of sellers who charge for shipping. By embedding shipping costs into prices, shopper perceptions and sales often improve at no cost to the seller.

Many customers, for example, would rather buy a $15 lamp with free shipping than a $10 lamp with $5 shipping. Whether it costs them the same or not, many customers simply want to eliminate shipping costs from the shopping experience.

Ecommerce Foundation included comments from Etsy CEO Josh Silverman in its U.S. Ecommerce Report, 2018 (page 39) that illustrate how this dynamic plays out in the marketplace for handcrafted, vintage, custom, and unique goods.

We know that shipping remains one of the top friction points in our marketplace. For example, in the third quarter, less than 20 percent of listings on Etsy offered free shipping and our research suggests that buyers perceive about half of the items in our marketplace as having high shipping prices. It not only impacts conversion rates on those items, it also damages the brand perception of Etsy overall.

When it comes to speed, however, some customers do not mind paying a bit more to get their purchase sooner, especially when standard shipping is free.

A survey featured in Ecommerce Foundation’s U.S. Ecommerce Report, 2018 (page 52) from Statista, Temando, and Research Now shows demand for various express shipping options and that consumers are at least somewhat more willing to pay for express shipping.

Embedding the cost of standard shipping can help keep prices for express shipping options low and appealing to customers who look for these options. If sellers offer free shipping by embedding these costs in the listing price of products, they typically only charge a few extra dollars on top of that for expedited shipping and avoid losing shoppers due to high shipping prices.

Paying $3 for expedited shipping on a $15 lamp beats $8 for expedited shipping on a $10 lamp.

How to make embedded shipping cost-effective

Even when customers cover the embedded shipping costs, sellers should prioritize securing the most cost-effective carrier service. Multi-carrier shipping technology ensures the best carrier service for every parcel. Depending on proximity, for example, ground shipping can often get a parcel to its destination just as fast as overnight shipping. In this scenario, multi-carrier shipping technology can filter out the unnecessary, expensive options as a result of more-informed decision-making.

Multi-carrier shipping technology can also help sellers avoid unexpected custodial fees incurred by bad addresses and non-compliant labels. When things do go wrong, it provides proactive notifications related to delivery status, disturbances such as weather events, or other problems that may arise.

As shipping costs and fees shrink, substantial savings can be “reinvested” to keep product prices low and competitive while still embedding free shipping costs. Doing so boosts customer satisfaction, increases margins, and makes sellers more profitable.

Sellers should not shy away from free shipping

The fear of high costs should not deter sellers from offering free shipping, which can drive sales for retailers and manufacturers.

For retailers, embedded free shipping often means higher sales at no extra cost. For manufacturers, embracing this concept in their own direct sales and encouraging resellers to do the same leaves room for exponentially more product sales. When implemented the right way with the help of multi-carrier shipping technology, free shipping boosts shopper perceptions and profitability for many sellers.

Learn more about Logistyx’s multi-carrier shipping technology: TME.