Free Shipping is Not Free
Free shipping is a compelling offer for online shoppers. It eliminates the additional cost at checkout, creating a smoother purchasing experience. It plays on the psychology of the consumer, making the shopping experience feel more rewarding and reducing cart abandonment rates.
However, free shipping is never truly free; someone pays for it. For sellers, this means absorbing the shipping cost themselves, which can eat into profits or necessitate raising product prices. Understanding this hidden cost is crucial for e-commerce sellers striving to balance competitiveness and profitability.
How Did Free Shipping Become the Standard?
The concept of free shipping gained significant traction with the rise of Amazon. Amazon Prime, introduced in 2005, revolutionized online shopping by offering free two-day shipping for a yearly subscription fee. This set a new standard and expectation among consumers, compelling other online retailers to follow suit to remain competitive. As a result, free shipping became a common tactic to attract and retain customers.
Etsy’s Policy on Free Shipping
In 2019 Etsy implemented a policy that gives preferential treatment to listings with free shipping. Sellers who offer free shipping see their products rank higher in search results. This essentially forces sellers to adopt free shipping if they want to stay competitive, despite the financial implications. For many small businesses, this policy shift has been challenging, requiring them to rethink their pricing strategies.
Impact on Customer Shopping Experience
Free shipping significantly influences a customer’s shopping experience. It simplifies decision-making and can enhance satisfaction, but it also complicates price comparison. When one listing shows a product with “free” shipping and another displays the shipping cost separately, it can be harder for customers to compare total costs effectively. On platforms like Etsy, where shipping costs are not displayed in search results, this can skew perceptions of value and affordability.
What Should I Do About It?
To offer free shipping without sacrificing profits, e-commerce sellers can adopt the following approach:
- Adjust Product Pricing: Create nearly identical listings for the same product. In one listing, roll the shipping cost into the product price and label it as “free shipping.” In the other listing, display the product price separately from the shipping cost. This allows you to offer free shipping while ensuring that the shipping cost is covered.
- Analyze Shipping Costs: Understand your average shipping costs per product and factor this into your pricing strategy. By knowing your costs, you can set prices that maintain your profit margins even when offering free shipping.
- Bundle Products: Encourage customers to buy more by offering free shipping on orders over a certain amount. This not only covers the shipping cost but can also increase your average order value.
Analyze Customer Activity
Once you have your duplicate listings, monitor their traffic and conversion rates. Once you identify which listing is performing better, you’ll know if your customers truly care about the free shipping label, or if they prefer to see the actual price of the product and shipping separately. Either way, if you’re selling on a platform like Etsy, it doesn’t hurt to keep both listings running indefinitely.