[Updated post from September 15, 2021]
Free shipping. Two words that send a shiver down any merchant's spine. After all, a free shipping offer is never truly free. Somebody has to foot the cost – and increasingly, it's the retailer.
With the holiday season now fast approaching, offering free holiday shipping is going to be more important than ever for merchants to gain a competitive advantage. Ongoing inflation and the consumer desire to save money are going to drive online shopping to new heights this year. This means that free shipping offers are going to play a key role in retailers' ability to attract shoppers.
Yet offering free shipping during the holidays also has some major drawbacks for online stores. With shipping costs only going up as peak season draws closer, indiscriminate holiday shipping offers can seriously affect your bottom line.
But thanks to the likes of Amazon Prime, the genie is well and truly out of the bottle where free shipping is concerned. Opting out of this increasingly essential perk will likely result in many shoppers choosing to go elsewhere, which doesn’t spell good news for your business as a purveyor of last-minute holiday shopping.
In sum, merchants will need to make free holiday shipping work for them by designing a strategy that enhances customer satisfaction and average order values, while also minimizing the impact on their bottom line.
But is this really possible? Yes!
Online shopping is once again set to dominate to holiday shopping season, with Deloitte forecasting growth of 13.5% in e-commerce sales this holiday season, pushing total sales up to $262 billion.
This means that once again, consumers expect ecommerce businesses to implement a suite of services to make shopping online more frictionless than ever – and free shipping is right at the top.
According to a holiday survey by Shopkick, a whopping 94% of customers said that free shipping was the perk they wanted most when shopping online this holiday season, followed closely by fast shipping (60%) while in-store pickup (BOPIS) and “Buy Now, Pay Later” come in much further behind at 19%.
With many customers still watching their wallets this year, it's hardly surprising that free shipping is the biggest drawback for those either unwilling or unable to visit stores. But with shipping growing more costly, offering free shipping during the holiday season is a bigger commitment than ever before – albeit one with big rewards attached.
Here's what merchants need to consider to create a free shipping strategy that maximizes profitability this holiday season:
This one is pretty obvious. By offering free shipping during the holidays, you're going to experience higher conversion rates than if you didn’t.
According to the Q2 2021 Consumer Trends Report by Jungle Scout, 66% of consumers now expect retailers to offer free shipping on all orders, while a further 80% expect a free shipping threshold to exist. Moreover, 61% of online shoppers say they are more likely to buy additional products if a free shipping option is made available.
Here’s the interesting part. Although it feels as though everyone is offering free shipping these days, it isn’t as widespread as we might think. In fact, only 65.4% of ecommerce stores offer free shipping at least some of the time, while just 17.5% offer free shipping on all orders.
The latter category is dominated by large retailers such as Target and Amazon, who can absorb the cost of shipping much more easily than independent online sellers. But if you fall into the former group, even offering free holiday shipping selectively will give you a valuable competitive edge during the holiday season.
It won't come as a surprise that free shipping is closely tied to customer satisfaction. Additional fees such as shipping add considerable friction to the online shopping experience. By removing this barrier, customers are much more likely to enjoy shopping with your brand – and return to shop with you in the future. 74% of consumers say they are likely to buy based on experiences alone, which makes free shipping a key factor determining whether the experience is positive.
When we talk about free shipping, we aren't just talking about outbound orders. Return shipping plays a key role not just in customer satisfaction, but whether they're willing to buy from you in the first place.
Most of us know from experience that shopping with an unknown brand feels like a bit of a gamble. During the pandemic, consumers have shown greater willingness to experiment with new brands, with 46% of US consumers having switched brands or retailers at some point. Policies like free return shipping help provide reassurance that we won't lose out if the purchase isn't right – to the point where many consumers won't shop without it.
According to a survey of Shopify returns management apps, 83% of consumers say that they read a merchant's return policy before buying, while 71% say that restocking or shipping fees are barriers that prevent them from purchasing from a retailer.
If there's one thing that shoppers hate, it's a lack of clarity over the final cost of their order.
Surprising customers with shipping charges during the checkout process is almost guaranteed to scare people off from completing their purchases. Unexpected shipping costs rank as the number one reason for shopping cart abandonment in e-commerce.
Why? Because waiting until the very end to factor in shipping costs makes a retailer look dishonest and representing their products as better value than they are. is only going to damage your brand. By publicizing a free shipping offer during the holiday season, consumers can shop in peace without having to worry about any extra costs.
The cost of shipping increases in the lead-up to the holiday season thanks to peak season surcharges being added to delivery services by major carriers. But rising small parcel volumes bought about by the COVID-19 pandemic have made seasonal surcharges an almost year-round occurrence.
Surcharges for the 2022 holiday season are targeting high-volume shippers, as well as levying additional fees for residential delivery due to inefficient journeys. Moreover, parcel carriers such as FedEx are now segmenting peak season into different date ranges with different fees attached, with the so-called ‘peak of the peak’ outstripping last year’s surcharges by a wide margin.
If your ecommerce business is shouldering the total cost of free shipping during the holiday season, these surcharges can seriously impact your profitability. You may need to bake shipping costs into your product prices or select free standard shipping speeds to keep costs down. However, this runs the risk of displeasing customers in the age of same-day delivery.
If outbound shipping is free for your customer, they’re more likely to expect free return shipping. 62% of consumers report being frustrated when they have to pay for return shipping or packaging. However, footing the bill both ways puts a massive strain on your business – especially during the holiday season.
According to the National Retail Federation, 16.6% of merchandise sold during the 2021 holiday season ended up being returned, up from 13.3% in 2020.
Add in return shipping costs for that 16.6%, and your gains from the holiday season could be wiped out. However, any friction during the post-purchase experience could shorten customer lifetime value, which is also more costly for your business.
While your customers will love a blanket free shipping policy, this can influence shopping behaviors in ways that are harmful to your bottom line.
For example, offering free shipping with every order gives customers little incentive to purchase several items at once. If they think of something else, they can simply place another order at no additional cost to them. Over time, this can cause your average order value to shrink.
Amazon offers a great example of what happens when free shipping policies are generous. Its extended free shipping policy allows free shipping on any eligible order placed within 24 hours of the initial qualifying order. A Walker Sands study found that on average, 2 in 5 US consumers receive 1 to 2 packages from Amazon every week. This jumps to 50% for customers aged 18-25, and 57% for customers aged 26-35.
While a logistics operation the size of Amazon can manage the number of split deliveries that result, this is would be extremely difficult for a smaller business, especially if next day shipping or same day delivery is promised.
Set a minimum order value. Introducing a free shipping threshold is a great way to prevent shipping and fulfillment costs from cutting too far into your profit margins. The size of your minimum order amount will depend on metrics such as your average order value and shipping cost per order, and whether you can use higher volumes during the holiday season to make your threshold more generous.
Free shipping on exchanges. If free return shipping is too costly for your business, consider only offering free shipping on exchanges. Exchanges are a valuable opportunity to prevent revenue from slipping out the door once the holiday season is over. Free shipping is a form of positive reinforcement that makes exchanges much more attractive, thus shaping customer behavior.
Offer free shipping as a limited-time special. Increasing buyer urgency with a promotion for free two day shipping or free express shipping is a great way to drive sales during the holiday season. It's also a powerful marketing tool for your social media channels to enhance your value proposition and upsell customers. Creating dedicated coupon codes for free shipping is the easiest way to offer this perk.
Turn free shipping into a paid loyalty reward. It's no secret that customers love loyalty programs – especially when they offer genuinely useful perks. Given the love that customers have for shipping programs like Amazon Prime and Sephora Flash, it shouldn't as a surprise that so many are willing to pay upfront. 64% of premium loyalty program members say would pay to get benefits, including expedited shipping. Best of all, 62% of consumers are more likely to spend more with the brand after subscribing to their paid loyalty program.
Keep an eye on holiday shipping deadlines and communicate them to customers. Major carriers set a shipping deadline for the holidays, after which they can no longer guarantee on-time delivery. Retailers should check carriers' holiday shipping pages to assist in setting their own store shipping deadlines to avoid shipping delays.
Offer multiple delivery options. It's extremely difficult for merchants to achieve the optimal balance between free and fast shipping with just a standard shipping option. While many shoppers will be happy waiting a few more days so long as the delivery is free, others less patient may choose to shop elsewhere. Offering one or more expedited shipping options in addition to free economy shipping is a great way to provide more flexibility.
Give your customers delivery estimates. During the holidays, shoppers are more likely to be anxious about late delivery. No matter whether they have opted for express delivery or standard shipping, be sure to give all customers an estimated arrival date. A delivery estimate prevents customers from feeling concerned and constantly checking in with your customer service team.
Be transparent about additional fees. If your brand needs to increase shipping fees charged through your online store due to peak season surcharges or other operational costs, make sure to disclose this information to your customer base well ahead of time to avoid frustration.
Consider a multi-node fulfillment strategy to reduce cross-country shipping. Shipping from only one location can get costly during the holiday season, especially shipping from coast to coast. Adopting a decentralized fulfillment strategy increases the proportion of short-haul deliveries that cross fewer zones, in turn saving your business money.
It can feel impossible to get the best of both worlds when it comes to free shipping. Fortunately, outsourcing fulfillment offers a pathway to better cost savings and brand experiences.
Partnering with an experienced e-commerce fulfillment provider gives merchants access to favorable wholesale shipping rates with both major and regional carriers, meaning you no longer have to choose between free shipping offers and being profitable during the holiday season.
Even better, Ryder's SmartRate selection tool allows merchants to compare carrier rates with USPS, FedEx, UPS, and more in real-time at one glance, ensuring that your business can achieve the perfect balance of cost and speed. With the backing of an experienced team, Ryder can design the optimum free shipping strategy for your business that maximizes customer satisfaction for success during the holiday season – and beyond.
