Smarter Strategies for FREE Shipping - Understanding the True Costs & Benefits to Retailers

Free Shipping

Free shipping is widely used by eCommerce retailers and is generally perceived to be extremely effective as a marketing and promotional tool to increase sales.

The majority of consumers consistently cite free shipping as a motivating factor in why they purchase on a given Web site.

While free shipping is accepted to be a conversion driver, it is not universally offered, and many retailers limit how broadly or frequently they use free shipping as a lever to drive sales.

This begs questions regarding the long- and short-term effectiveness and total costs associated with free shipping offers.

For over a decade, Forrester Research has studied drivers and inhibitors of eCommerce adoption, including the role of shipping promotions. In this study commissioned by UPS, Forrester synthesized insights and conclusions from that extensive body of consumer and retailer research. We also collected data from 13 Web retailers of varying sizes and business structures via in-depth, one-on-one interviews regarding their experiences with free shipping offers.

All retailers specifically interviewed for this report acknowledged the positive impact on sales with free shipping but conceded that there was an adverse impact on margin. In some select cases, there was also a negative impact on the customer experience. Several retailers noted employing other tactics (e.g., flat-rate shipping, higher product costs) as preferred alternatives to free shipping that improved conversion rates while still preserving margin.

UPS also engaged Harris Interactive in July 2008 for a quantitative study of consumer attitudes toward free shipping that was separate from Forrester’s research. Some select, relevant data points from that research are also highlighted in this document. In particular, the Harris study substantiated two key consumer findings: 1) Both the cost of shipping and free shipping services have a strong influence on retailer selection for online purchases, and 2) the importance of free shipping declines dramatically in purchases involving either high-value items (regardless of urgency) or a high-urgency occasion.

Forrester’s Study Yielded Five Key Findings:

1. Retailers find value from free shipping but are often reluctant to provide such offers
2. Free shipping sometimes results in unexpected costs beyond subsidizing the shipment
3. Product category was the biggest driver of the “effectiveness” of free shipping
4. Many retailers have found creative workarounds for offering free shipping
5. Where “free shipping” resides on a P&L can significantly impact how frequently retailers offer it