Using the power of "free" to drive online sales and build loyalty.
In his book Predictably Irrational, behavioral economist Dan Ariely devotes an entire chapter to the subject of “free,” titled: “The cost of zero cost: Why we often pay too much when we pay nothing.”
He makes the point that consumers are often irrational about making decisions when they see the word “free.”
“Free gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is,” he says.
For years, retailers and other marketers have recognized the power of this siren song and used it to their advantage in pricing and promotion. “Free” has huge implications in turning browsers to buyers.
“Free” Boosts Sales
Ariely cites a real-world example that’s particularly apt. When Amazon started offering free shipping over a certain amount a few years ago, its division in France offered the same deal, but with shipping priced at one franc (about 20 cents at the time). Sales everywhere jumped—except in France.
“ Free gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is.”
One franc—although a real bargain—did not move the needle, but free shipping triggered an enthusiastic response.
In the years since, free shipping for online shoppers has moved from novelty to norm.
Now, nearly 64% of online transactions come with free shipping, according to studies by our research partner comScore. In fact, free shipping is so commonplace now that you can no longer count on getting a bump in sales revenue just from offering it.
Still, in the 2015 UPS Pulse of the Online ShopperTM Study, 75% of online shoppers polled ranked shipping costs second only to product selection in their purchase decision making.
So it’s best for retailers to think about free shipping strategically, and to remain mindful of two things: First that “free shipping” really isn’t free, and second that it may not be necessary in every case—especially when products are unique or hard to find.
For example, the study found 60% of shoppers are willing to pay when free shipping was not offered and they wanted the product, and, 57% paid for shipping when the total cost was a bargain, including shipping costs.
Using “Free” Strategically
While competitive pressure in some retail segments may dictate free shipping, another option is to use it as a strategic lever to drive business, or reward and retain customers.
Our study revealed an intriguing range of “free” strategies that omnichannel retailers can use to increase sales, prompt store visits and reward customer loyalty.
- Providing ship–to-store or pickup in store options. Some 38% said they have gone to a store in person to pick up or return their order if it was shipped free—up from 35% in 2014. This represents an important sales opportunity for brick and mortar retailers, since many consumers said they often buy an additional item while in the store.
- Setting cart thresholds. Some 60% of online shoppers surveyed have added items to their cart to qualify for free shipping. Cart thresholds are a useful way to increase basket size, which can be optimized through testing. Too high a threshold may lose customers; too low may leave value on the table.
- Offering slower transit time. In our survey, almost half of online shoppers have chosen the slowest transit time offered on a retailer’s site—because it was free. Shoppers are surprisingly patient and are willing to wait two extra days if shipping is free.
- Offering loyalty programs. 26% said they were willing to join a loyalty program to qualify for free shipping, and those who have joined said free shipping was one of the most valuable benefits, just slightly below free merchandise, cash-back offers and product discounts.
“ For the savvy retailer, the free option can serve as a powerful incentive to bolster bottom lines and influence customer behavior.”
Today’s new generation of empowered consumers frequently move from desktop, laptop or tablet to a mobile device when researching or buying—often during a store visit.
They’re likely to spend more and change their shopping behavior when offered free shipping and return incentives.
Shoppers tell us they monitor the availability of free shipping from favored retailers, many of whom use free shipping to promote specific products, boost sales tied to holidays or special promotions.
For example, our study shows 44% of online shoppers have searched online for a promo code for free shipping. And, 32% said they have delayed making a purchase to wait for a free shipping offer.
What’s more, emails with promotions are more likely to prompt shoppers to buy than any other format—and 54% of those surveyed said emails offering free shipping top the list.
The bottom line: Free shipping has become part of the online shopping experience and often serves as a differentiator as consumers choose when, where and how they do business. Free shipping is here to stay, and retailers who use it strategically to motivate consumers will turn more browsers to buyers—and gain a competitive edge.
 Ariely, Dan, Predictably Irrational: The Hidden Forces That Shape Our Decisions, Harper Collins, 2008, pp.64-65
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Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.