Recently, I was at a dinner with friends when a conversation started that caught my attention.
My wife and some of her friends started talking about how much they liked free shipping. It went something like this:
“I love that I get free shipping from Target with my store credit card,” one of them said. “It makes buying stuff so much easier. It’s awesome.”
“Yes,” someone else responded, “free shipping is the best. I rarely buy stuff unless it has free shipping.”
The conversation continued, but these quotes give a general idea about how it went. Later, I asked my wife more about it to get her take on free shipping.
“It’s awesome. The cost of shipping is the number one barrier to my buying things online. Right next to it is the fact that you can’t try stuff on. Basically, you don’t ever like to feel like you’re paying extra. Even better is websites that say free return shipping. That’s important for clothes.”
Armed with my new primary research, I was curious to learn how important free shipping is for online retail. I knew that Zappos has had a lot of success with free shipping and free return shipping, but I didn’t know how much of an impact free shipping has on online retail sales. To figure this out, I decided to do some research. Here’s what I found…
The Reasons Customers Abandon Shopping Carts
Let’s first of all be clear about one thing—online retail is a challenging business. It’s lucrative with Amazon leading the way earning $48.1 billion in revenue in 2011, but it’s also challenging.
Online customers are finicky and abandon shopping carts for many reasons. AlixPartners recently conducted a survey where they found the following top reasons that customers chose not to order from an online retailer or other mail-order businesses (catalog, TV program, etc.):
- Need to see or touch the item before purchasing (37%)
- Cost of delivery too high (36%)
- Concerns about quality or freshness of a product (26%)
- Ease of returning the item (20%)
- Loss or damage in transit (17%)
- Concerns about the size or fit (16%)
- Better selection in local store (15%)
- Concern about getting the right part or item (13%)
- Better total price in local store (13%)
- Installation service unavailable (11%)
- Arranging for removal of old item (11%)
- Difficult to get item into the house once delivered (10%)
- Not at home during the day to receive shipments (10%)
- Too long to deliver (10%)
- Service on item after purchased (9%)
- Concern with getting a different item than ordered (7%)
- Privacy concerns (4%)
- Can’t track the item while in transit (3%)
- Weekend delivery required (3%)
As this list shows, there are a number of reasons that lead customers not to purchase online or through mail order, and shipping costs are near the top of the list.
The second most cited reason for not purchasing online (or mail order) is shipping costs being too high. Since free shipping completely wipes out this hurdle, it’s safe to infer that free shipping would impact whether or not these 36% of customers convert from an abandoned cart to a sale.
Moving on to the ninth item on the list, 13% of people said they didn’t purchase because total cost was cheaper at a local store. Since free shipping lowers the total cost of items purchased online, it’s again safe to infer that free shipping would impact these 13% of purchases. There’s no way to know how many of these customers would convert to buyers, but we can assume that free shipping would make a difference for some of them.
AlexisPartners also found that “75% of consumers shopped from home last year, and nearly one-third of those make online purchases at least once per month.” Out of this group of home shoppers, 95% said that shipping costs impacts their decisions, with 64% saying it greatly impacts their ordering decisions and 31% saying it somewhat impacts their ordering decisions. Based on these results, you can see that shipping costs play a significant role in online retail purchases.
Now that we’ve seen this impact that shipping costs have for online and mail order purchasing, let’s move on to consider two more studies that show the influence free shipping has on conversion rates and cart sizes.
The Impact of Free Shipping on Conversion Rates and Cart Sizes
Usability Sciences conducted a study on shipping costs with one of their online retail clients. They found two main reasons customers abandon a cart. First, customers abandoned when they couldn’t find what they were looking for; second, customers abandoned when shipping options weren’t acceptable. Here are more details from the study:
Our study found that 56% of all shoppers browsed for products, but only 19% placed an item in their cart. The most cited reason for this first level of abandonment was, “I can’t find what I’m looking for.” Of this 19% only 7% of shoppers completed their transaction. The most cited reason for this second level of abandonment was, “the shipping costs and options were unacceptable.”
As you can see, unacceptable shipping costs and options was the leading reason conversions dropped from 19% to 7%. Some of these shoppers dropped out for other reasons, but better shipping options, including free shipping, would have had an impact on these 12% of abandoned orders.
In another study, Usability Sciences found an increase in the number of items added to shopping carts and an increase in cart prices after free shipping was offered. Here are the details from this study:
The average number of items in the cart was 3.7 with an average ticket price of $142.93, versus 3.4 items and a ticket price of $118.29 when free shipping was not offered.
Clearly, not only do shipping options influence conversion rates, but free shipping also influences the number of items customers put into their carts and the overall value of those items.
How Long Will Customers Wait for Free Shipping
Even though free shipping is enticing to some customers and will convince them to buy when they wouldn’t otherwise, there’s another factor that comes into play when shopping online—how long the product takes to arrive.
Not only will customers abandon a cart if the shipping costs are too high, they’ll also abandon a cart of the shipping takes too long. Even if the cost is free, shipping that takes longer than customers are willing to wait can be a deal breaker. If it’s a time sensitive product, customers will choose to buy the product locally, even if the cost is higher.
So how long are customers willing to wait?
In the same AlexisPartners survey mentioned previously, shoppers were asked the following question: “When buying from an online store, catalog, or television program or commercial, what is the maximum delivery time you are willing to accept in order to receive free shipping?” The results are as follows:
- One week – 50%
- 5 days – 24%
- 4 days – 12%
- 3 days – 9%
- 2 days – 4%
Based on these results, 50% of shoppers are willing to wait up to one week as long as they receive free shipping, but the other 50% drew a line for the amount of time they were willing to wait. And even though the results are split 50/50 between one week and less than one week, 86% are willing to wait between 4 and 7 days for their order as long as they receive free shipping.
Wrapping It Up
From these studies we’ve learned that shipping costs are one of the top factors determining whether or not people make a purchase online or through mail order. If the costs are too high, customers may choose to purchase locally.
We’ve also learned that shipping costs increase conversion rates and impact the number of items and the total dollar amount that’s added to shopping carts. From this we can conclude that free shipping helps customers get over the shipping cost hurdle and also entices them to buy more products.
Lastly, we’ve learned that, even though free shipping has a positive impact on conversion rates and cart additions, there’s a limit to what customers will accept for free. Even if they don’t have to pay for it, some customers aren’t willing to wait five to seven days to receive their products.
Based on these studies and the primary research from the beginning of this post, we can conclusively say that free shipping has a significant impact on online retail sales. Whether or not it’s right for your business is something for you to decide, but there’s a good chance that offering free shipping will get more visitors over the hurdle of shipping costs and convince more of them to become buyers. The question is this: what difference will it make for you? Only through experimenting and testing will you know for sure.
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