What’s Better: Free Shipping or Lower Prices?

Humans tend to affix a disproportionately high value on things with zero dollar price tags, regardless of what those things are. Have you ever waited in line at a conference for complimentary swag? You wouldn’t go to a store to get that company’s branded t-shirt. But if it’s free? Sign me up! Buy one get one free frappuccinos? Free tote bag with a purchase of $50? 

We love freebies. Period. But, why do we love them SO much? And how should they affect the decisions you make in your online store? 

While the psychology behind consumer purchasing decisions is not entirely black and white, the word “free” does carry mass appeal. This may have something to do with the zero price effect. When consumers are faced with the choice between several products or services (or buying nothing), they’ll typically choose the one with the highest cost-benefit difference. 

When it comes to free products or services, on the other hand, people don’t generally subtract the unspoken costs from benefits. Instead, they see the benefits as being significantly higher. And this, in essence, is the zero price effect. 

There’s just something in our brains that makes us want valuable merchandise, services, or commodities for nothing. It makes us feel special — like we’re being rewarded, whether it’s for our loyalty to a certain brand, or just for being good humans.

Okay, we made that up. ‘Zero price shipping’ isn’t actually a thing, but FREE shipping is. And thanks to companies like Amazon, it’s become the norm. According to a Shippo survey, 93% of shoppers will take action to qualify for it — that’s a lot if you think about it. This usually means they’ll add more items to their cart, which translates into more sales.

If you own a WooCommerce store, you can make it easy for your customers by letting the Free Shipping Counter extension display the remaining amount needed for them to qualify for free shipping. 

It’s also worth noting that nearly 70% of online shopping carts are abandoned and the primary reason is unexpected costs. In many cases, these costs are related to shipping fees. Having said this, free shipping isn’t for everyone. And, as long as you can be upfront, your most loyal customers should stick around no matter what. 

There’s not a single strategy that dictates how all online businesses should structure their shipping. Having the right eCommerce fulfillment strategy for you is key. Maybe this involves free shipping and maybe it doesn’t. Maybe it includes a mix of free shipping and paid shipping depending on order size, delivery location, or customer loyalty. 

Let’s examine some of the pros and cons of free shipping, what types of businesses can benefit from it, and how to develop the right shipping strategy:

Offering something for free influences customer behavior 

Customers love to think they’re getting a great deal. So, even though shipping costs are usually baked into product prices, just seeing the word “free” can have a profound impact on their purchasing decision. 

Let’s examine two simple scenarios. In the first, you sell an item on your site for $32 and charge $6 for shipping. In the second, you sell the same item for $38 and offer free shipping. In both instances, the customer is paying the same price, but which one do you think they’ll choose? Of course, it depends on the customer, but if you apply the zero price effect here, it seems likely that more consumers will choose the second option. 

Not every business can afford to offer free shipping 100% of the time

While the zero price effect can be a game-changer for some businesses, it’s not a strategy that’s going to work for every business. You need to be realistic about your margins. If, for instance, you sell a product for $5 and shipping costs $6, you might not be able to get away with charging $11 for the product just so that you can offer “free” shipping. On the flip side, most consumers aren’t going to want to pay $6 to ship a $5 product. 

To solve this, you could meet your customers in the middle. Maybe this means you charge $8 for the product and pay the remaining $3 for the shipping yourself. Your profit margin is still going to depend on things like packaging and handling costs, but this gives you the opportunity to make money and still offer “free” shipping. Or, you could charge $8 for the product, then list the shipping cost at $3. This is likely still going to have more appeal to your customers than paying $6 to ship the product at its original $5 price tag.

Another way to mix up your options is to let your customers choose. Perhaps you offer free ground shipping with paid upgrades for faster delivery. Or, offer flexible table rate shipping where multiple shipping rates are defined based on location, price, weight, shipping class, or item count. It’s your business, and you have options. 

Your shipping strategy should be one that makes sense for your business

The importance of having the right shipping strategy for your business can’t be stressed enough. Yes, it’s popular to offer free shipping and people love it, but those happy customers of yours aren’t going to benefit your business if you go bankrupt.

According to a Geekwire analysis, Amazon lost a whopping $7.2 billion on shipping in 2016. And yet they still continue to offer it so they can beat out their competitors and acquire new customers, among other things. 

While probably at a smaller scale than Amazon, you may be taking a similar approach — listing certain products below your costs in order to introduce your brand to new customers. This is known as a loss-leader strategy, where you entice visitors with a great deal in hopes that they add other, profitable items to their cart. 

You probably can’t do this at the scale of Amazon, but it can be an effective strategy in a competitive market. 

Another competitive strategy is to have the lowest-priced item at face value. If you sell the same product as multiple competitors, your ads might appear next to them in something like Google shopping. In this case, it might be better to have the lowest display price so potential customers click your ads instead of someone else’s. Then, you can add shipping costs at checkout. 

On the other hand, luxury brands might not want to lower their products’ costs because it can reduce the perceived value of items. Instead, free shipping is a nice bonus to boost conversion rates. In the minds of consumers, cheap shipping isn’t tied to the quality of the item itself. 

Again, free shipping is great. But it’s not always the right answer. If you do offer free shipping, you’ll need to find the right balance between your conversion strategy and your actual bottom line.

Do your homework and know your numbers

Figure out what the shipping costs are for each item on your inventory list. Then, craft a shipping strategy that lets you continue making a healthy profit while keeping customers happy. 

Things that can impact your shipping costs include what you’re shipping, how you’re shipping it, and whether or not your items are perishable. Also, consider how much time it takes to package your products and how you’ll pay for manual labor. You don’t have to offer 100% free shipping on every single item. 

Many times, free shipping only at certain times or under specific conditions can be a very effective sales strategy. For instance, if a customer has to purchase $250 worth of products to qualify for free shipping, this might encourage them to add more to their cart to meet the minimum. But, if they don’t meet the minimum $250, they have to pay. It’s a win-win. 

Again, you must factor in your margins to make this a truly effective strategy. Remember, shipping costs can vary widely based on things like weight, size, and location, so please be meticulous with your numbers. Moreover, you can always adapt your shipping strategy as you go based on how your audience responds. You’re the boss. Experiment with different strategies. You can also try offering free shipping only at certain times of the year, like Black Friday or Labor Day. 

Finally, make sure you’re getting the best possible deal on your shipping costs. This might involve a bit of shopping around, but it will be time well spent as you’ll be able to pass your savings on to your customers in the form of free or low-cost shipping. Consider an extension like WooCommerce Shipping, which gives you huge discounts on USPS and DHL shipping rates.  

Finding that sweet spot is the best strategy 

When all is said and done, we know that “free shipping” isn’t actually free. Someone has to pay for it.

So, what’s actually better — free shipping or lower prices? There’s really no concrete answer to this question. Ultimately, finding the right balance between what’s best for your business and what keeps your customers happy is your golden ticket to success. The great thing about being a business owner is that you get to call the shots!

Check out the full list of our shipping extensions here. 

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Elizabeth Rosselle