Strategy

The Case Against Free Shipping

For years, cart abandonment and lost loyalty have been linked to shipping fees. There's a lot missing from the story.

For a long time, free shipping was our friend. Sure, it was the ultimate ploy for businesses to incentivize shoppers to spend a little (or a lot) more to reach a certain threshold, but then—POOF—the glory of free shipping healed all wounds.

Over the years, free shipping has inspired memes that felt like they were directly tapped into the contemporary consumer experience, you know the one, where you find a good deal on a product you like online, take the transaction to checkout only to find that—ZAP—you've been hit by an additional $6.99 on nonsense. And it hurt.

"In a 2018 survey by Internet Retailer," Amanda Mull wrote earlier this year, "shipping charges were cited as the most common reason shoppers abandon their carts, topping the pet-peeve list for nearly a third of respondents, ahead of things like not wanting to create an account and being unsure of the store’s return policy."

Of course, the irony is that consumers cherish the service of fast delivery, even as they hate paying for it. Though Amazon is tip-lipped about its figures, it seems safe to say that the ubiquity of Amazon Prime in households around the U.S. and beyond revolves around the early attraction to its free, two-day shipping.

Revenge of the Consumer Habit

Part of the value proposition of free shipping for young brands in particular is that it aids in the process of consumer discovery. Brands convince a hesitant shopper to take a gamble on an item in part with the lure of free shipping. And sometimes, it works. But other times, it actually cuts against a company's momentum.

According to a recent study in the Journal of Marketing Research, it turns out that, despite our general assumptions about what free shipping does for business and the passion that customers carry about it, it's hard to actually know much of the effect of free shipping on the bottom line. In the study, three professors studied a European retailer's books as it relied on free shipping promotions over the course of three years. The results were mixed.

"During the typically four-week periods when free shipping was offered, online order volumes rose 11%," one write-up of the study explained. "But when the cost of returns was tallied against the sales proceeds, the authors calculated that on balance the results for the promotion periods amounted to an average 0.7% loss." The study's authors, who collected data over three years, found that for every $100 that a customer spent, roughly $37 of those items were returned.

This spells out the second big irony of free shipping: Even as it pushes new shoppers to make purchases they might not ordinary make, those riskier items gets returned more frequently.

Better Results

Of course, this study's free shipping experiment didn't take place in a vacuum. And what ultimately determines whether a consumer is satisfied with a purchase has to do with the expectations set by the seller. And even the most seamless purchase journey is wasted when the product look, feel, or perform isn't as advertised.

This is where the intangibles of the transaction come in—be it data gathered from honest customer reviews, clear and savvy uses of brand content, the simple presentation of information and FAQs, or good and accessible customer service. The problem, however, is that free shipping remains weighted against small sellers, who typically pay more per package shipped than a mega-seller and have fewer avenues available for recouping losses on items that get sent back. With friends like free shipping, who needs enemies?