Shop Talk: Free Shipping vs. Offering Lower Prices

Q: "I'm interested in the idea of free shipping vs. offering lower prices but shipping surcharges at checkout. For industries like mine (online furniture), which require freight shipping, does offering free shipping have the same positive effect on sales as it does for small products using UPS, etc.? Does an online consumer of furniture expect (and willingly pay) shipping surcharges, so long as the product price is low enough? Basically, will I increase conversions by lowering prices and getting rid of free shipping? Thanks!" — Deborah Fester, owner, Painted Furniture Barn

A: While I understand your question, there's no absolute "right" answer. The best advice I can offer is to try both promotions — free shipping with a higher price, no free shipping with a lower price — and measure the results. You could also survey your customers, asking them which promotion they would prefer.

However, since many consumers don't understand the fluid relationship between the price of an item and the shipping charges, especially for noncommodity items like furniture, I think the free shipping option would hold greater appeal.

If you decide to go with free shipping, there are several ways you could cut your shipping costs, including the following:

1. Give your customers deferred delivery choices. Consider adding deferred, residential ground alternatives to your website, including offerings from UPS SurePost, FedEx SmartPost and Newgistics. While these services may add days in transit, they come with significantly lower pricing than FedEx and UPS air and ground services. Of course, the merchandise being purchased often dictates the shipping method — fresh fruit, for example, must be shipped for delivery within two days. When presented with a choice, most online shoppers will choose the low-cost (or free) delivery option even if it means a longer transit.

2. Try collecting membership dues to offset shipping costs. Amazon.com and other leading online retailers offer free shipping for customers who pay an annual fee to access free deferred shipping, as well as low-cost express upgrades on eligible products. Membership programs help by not only defraying your shipping costs, but they also enhance customer lifetime value. Since customers in essence pay for the free shipping up front, they're more likely to regularly come back to your site to buy more.

3. Try offering free shipping … with minimum charges. Many companies have been successful with free shipping offers only for orders that are over a certain value. This strategy enables retailers to improve the chances of profitability by creating a minimum-to-order value, often inducing shoppers to buy additional items to reach the free shipping threshold.

Of course, there are many additional strategies you can use to reduce shipping costs to enable free shipping promotions. I'd love to hear from you to see if you've developed any other ways to offer your customers affordable free shipping, or if you have any questions. Good luck!

Rob Martinez is the president and CEO of Shipware, a transportation spend management consulting firm. Rob can be reached at rob@shipware.com.