Q&A: When Does Free Shipping Make Sense?
Question: Hi Mark, as I am trying to redo pricing I have tough competition from Amazon and some other MRO guys in terms of freight. How can we attack freight and pricing in one piece? We want to understand how we can offer free freight. For certain value items, what’s the inflection point where free freight makes sense and where it won’t? S
Answer: Hi S, What a fascinating question and I’m sure you won’t like my answer. 🙂
Reasons to Charge for Shipping
In most cases, this is incremental revenue to you. Most buyers choose what they are going to buy based on price and quality, and when they go to check out, extra “fees” are often added to the price. Hotels charge resort fees. Sales tax is an added fee. Shipping is often seen as one of those added fees that just gets paid but wasn’t included in the purchase decision process.
Reasons to include free shipping: Often, charging for shipping is seen as trying to be deceptive. Buyers have come to expect free shipping. These are OK reasons, but the only good reason I can think of to bundle shipping in the price is if it influences buyers’ decisions.
When I buy from Amazon, and an item comes up that doesn’t include free shipping, I continue shopping. I go back and buy that item, but I don’t just automatically buy it. However, this is only because I was trained to behave that way. I clearly remember that I used to not do that.
Ask your market
The single most important concept to answer your question: How do your customers shop? Do they consider the price of freight when making their decision or not? Odds are good that some do and some don’t. Can you figure out which ones those are and segment your market? One of my favorite tricks that Amazon did (does?) I saw before I had Prime, I would always buy at least $25 worth of goods to earn free shipping, but when I went to the shipping page, standard shipping was the default. I had to click a radio button to get free shipping. This is one way to get at least some of the people who weren’t looking for free shipping to pay for shipping.
In the end, your answer is probably the same answer for 90% of all pricing questions: Go ask your market. Do a study on how many buyers and which buyers use the price of shipping in their purchase decision. That answer will provide a huge step forward to forming your decision.
**Note: Mark Stiving has an active LinkedIn community, where he participates in conversations and answers questions. Each week, he creates a blog post for the top question. If you have a question, head over to LinkedIn to communicate directly with Mark.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.