There are no shortage of strategies out there for merchants trying to afford free shipping.
Free shipping minimums, slower shipping speeds, and limited-time promotions are all effective ways to prevent free shipping costs from eroding your profit margins.
However, navigating the eligibility of these initiatives can add a lot of friction to the shopping experience. If a customer misses the boat on a free shipping special or doesn’t quite reach the free shipping threshold, they might choose to abandon their purchase entirely.
But what if there was a way to guarantee your customers free shipping – without having to cover the cost yourself?
Spoiler: There is! It’s called a shipping membership program.
In this post, we’re going to cover:
A shipping membership program is a type of paid loyalty program where customers pay an annual fee to access free shipping privileges with a specific retailer.
By paying for free shipping upfront for a defined time period, this incentivizes members to shop with the retailer more frequently to make the most out of their investment. This means more repeat purchasing behavior and higher levels of customer loyalty.
Where free loyalty reward programs were once widespread, we’re seeing more retailers following in the footsteps of Amazon Prime.
Walmart, Best Buy, and CVS are just a few examples of retailers who’ve recently launched their own membership programs to build more recurring revenue.
This comes as surveys show that the appeal of traditional loyalty programs is beginning to dry up – especially among Millennials and Gen Zers.
45% of Millennials say that they choose not to join free loyalty programs because it requires too many purchases to earn rewards, while just 18% of consumers as a whole engage with every loyalty program they belong to.
Charging for memberships enables retailers to offer their customers more premium perks, attracting those who are most invested in purchasing regularly from them. In sum, it’s a new form of retail segmentation which offers much better targeting of high-value shoppers.
However, launching a comprehensive paid program from scratch isn’t feasible for the majority of online retailers.
Why? Because big-box retailers offer a wide range of product categories and services. This means that their membership programs have broad appeal and a lot of unique potential perks.
It’s worth remembering that while it started out with free two-day shipping, Amazon Prime today also includes access to a full streaming service and free grocery delivery. For smaller retailers, this is very difficult to compete with.
By comparison, a shipping membership program is a very straightforward program for merchants to create. Given the high demand for free shipping services, it’s a popular perk with consumers that offers online retailers a range of additional benefits.
Paid program or not, we all know that there’s no such thing as ‘free’ shipping. Somebody has to foot the bill – and it’s usually the merchant.
In recent years, free shipping services have become a bigger expectation by consumers, thanks to moves by Amazon and Walmart to normalize this offering. 94% of customers said that free shipping was the perk they wanted most when shopping online this holiday season, while 60% of consumers report choosing one ecommerce store over another due to better delivery options.
This puts merchants in a tough position. Discussions about free shipping often feel like a lose-lose scenario: Shoulder shipping costs and lose profits, or risk your customers defecting to a competitor.
Put simply, a shipping membership program takes these concerns out of your business’s hands. By having customers pay for shipping in advance of placing an order, the question of ‘who’s paying’ is avoided at the point of purchase.
The idea of a shipping membership program can seem like a bit of a misnomer. If so many consumers don’t want to pay for shipping, why would they be willing to sign up for a program where they’re doing just that?
This is where we need to dive into the psychology of paid loyalty programs. It turns out that many consumers are willing to pay for a better customer experience – so long as it’s the right perks.
In fact, nearly two-thirds of free program members would be willing to pay a fee if they received benefits such as improved loyalty points or expedited free shipping – a figure that rises to 70% for millennials.
Moreover, a survey by Clarus Commerce found that 64% of consumers listed free shipping as the perk they wanted most in a paid loyalty program, followed by discounts (53%) and faster shipping (51%):
Put simply, consumers prefer to pay upfront to access premium services than trying to access the right loyalty program tier.
A 2016 study of tiered programs at hotel chains found that while tiered rewards programs did encourage some customers to spend more, it had the opposite effect on those who struggled to qualify for higher membership tiers. In the latter group, tiered programs actually resulted in higher levels of customer churn.
Adding a shipping membership program alongside flat-rate shipping or a free shipping threshold gives your customers more flexibility and choice during the shopping journey. This means higher customer satisfaction and higher levels of customer loyalty.
It’s no secret why consumers engage with paid programs far more than free ones. When they’ve invested money in gaining access to certain perks, customers are far more likely to purchase frequently.
According to McKinsey, paid loyalty program members are twice as likely to spend money with a brand after subscribing compared with free program members. Moreover, paid program members are 59% more likely to choose your brand over competitors, and 62% more likely to spend more with each purchase.
If we look at free shipping offerings, in particular, the results are even starker. When free shipping is available, 93% of consumers report being encouraged to buy more items, while orders involving free shipping are 30% higher in revenue than those without.
Shipping membership programs enable your brand to drive revenue and customer loyalty by offering customers the most desirable ecommerce perk. By keeping it simple and no strings attached, merchants can fuel purchasing activity and gain a new source of recurring revenue.
According to Baymard Institute, 68% of all online shopping carts end up being abandoned. Of this number, 49% of consumers do so due to unexpected costs such as shipping and taxes.
The message is clear: When customers experience additional fees popping up at the checkout, the chances of them going through with the purchase drop considerably.
By charging customers upfront for a year’s month of shipping, your customers don’t have to think about shipping costs for the duration of their membership. So far as it appears to members, shipping is ‘free’ each and every time they make an order.
Moreover, with U.S. consumers making an average of 156 impulse purchases every year (resulting in spending of $5400 annually) removing the friction of shipping fees at checkout increases the odds of customers making impulse purchases.
Setting the membership fee is going to be one of your first considerations when creating a shipping membership program. But this doesn’t just hinge on your shipping costs; there are several other factors your ecommerce business needs to think about when putting a price on membership:
Average purchasing frequency / average order value. Knowing how often and how much your customers are purchasing is essential to gauge the minimum fee required to cover shipping costs.
Service level. The faster your chosen shipping method is, the more it’s going to cost. It’s important to check which of your current shipping options are the most popular to understand what service level will be most appropriate. If few of your customers pay for expedited shipping, for example, it makes little sense to choose this for your program.
Customer expectations. If your membership program only covers shipping, there’s a limit to how much your customers will be prepared to pay without other perks. For example, Amazon Prime cost $79 back in 2005 – a figure that‘s risen to $119 today due to the number of additional services now included.
Free shipping threshold. Some retailers elect to use a free shipping threshold in their shipping membership program to avoid making a loss on low order values. If you’re a small retailer with narrow profit margins, there’s the risk of shipping costs outstripping membership fees unless you have a threshold in place. Alternatively, you can increase the membership fee to provide yourself with some extra wiggle room.
For more on how to calculate your free shipping threshold, read our dedicated guide.
When introducing a membership program, it’s essential to review your entire shipping strategy to ensure that nothing will undermine its uptake.
For example, if your free shipping threshold for non-members is higher than it is for members, there’s no motivation for customers to sign up.
But if the threshold in your shipping membership program is deliberately set lower (or has no threshold at all) this provides a solid alternative to customers who are tired of navigating minimums every time they shop.
Likewise, if your ecommerce business doesn’t currently offer free return shipping to customers, you should consider adding this perk to your program. When 92% of consumers say they will buy from a merchant again if the return process is easy, this is a great way to drive more repeat purchasing behavior amongst members.
Once your shipping membership program is fleshed out, it’s a good idea to trial it with a small group of customers before rolling it out more widely.
A test run allows you to see if there are unexpected pain points and whether customers are using the program the way you expected them to. Asking for regular customer feedback during this phase is invaluable in helping you to refine your program and create a better offering.
If you do need to make any tweaks, it’s much easier to do this when your program is small and less people are affected (see our guide on how to revamp your loyalty program for more details).
For example, you can use your CRM to send invites to the customers who order from you the most frequently. Giving early access to new perks is a great way to reward your brand’s most loyal customers.
If you’re wanting to expand your test group, consider doing a social media campaign where the first 100 customers to sign up get a special incentive, such as a discount on their next order. This also helps you to transition effectively from piloting your program to offering it more widely.
Once your shipping membership program has been thoroughly tested, you’re ready for the official launch. But you don’t want to set your program live and call it a day; if you want to ensure a strong uptake, you need to spread the word about your program.
After all, if you don’t tell your customers about your program, how are they going to know it exists?
Here are a few ideas to help you market your shipping membership program effectively:
It’s impossible to talk about shipping membership programs without mentioning the most successful of all. Amazon was the first online retailer to identify just how much friction shipping adds to the experience of shopping online – and how shipping subscriptions could add a powerful source of recurring revenue.
We all know that Prime is no longer just a shipping subscription; today, Prime members gain access to a wide variety of other services for a price tag of $119 a year. However, it’s free shipping that still proves to be the biggest drawcard for customers.
Sephora Flash is a separate offering to Sephora’s highly successful free loyalty rewards program, Beauty Insider. Flash gives members a 12-month subscription for 1-2 day shipping with no minimums at $15 per year.
Beauty Insider is easily one of retail’s most successful tiered loyalty programs, so the launch of a shipping membership program marks an interesting pivot for the brand. Free shipping with no minimums was previously only available to customers in the Rouge tier of their program, with members on lesser tiers facing either a $35 and $50 free shipping threshold.
Sephora Flash represents recognition of the growing demand for more experience-driven loyalty perks. By segmenting their shipping membership program away from their free program, this also gives them the option of expanding Flash to include other perks in the future.
Urban Outfitters began trialing their UP membership program in February of this year, a paid program that will be available across the retailers Urban Outfitters, Anthropologie, and Free People.
Interestingly, Urban Outfitters has chosen to combine premium rewards with a tiered membership model, Both tiers have access to free shipping and free returns, but different levels of discounts depending on whether the customer is paying $48 or $98 per year.
By uniting all of its brands under one umbrella loyalty program, Urban Outfitters program has a competitive differentiator that provides ample cross-promotional opportunities between retailers.
For a competitively-priced $98 per year, Walmart + members gain access to free shipping, fuel discounts, free online grocery delivery, and most recently, early access to promotional deals such as Black Friday.
Walmart + is the next phase in Walmart’s long-term plan to position itself as a credible alternative to Amazon Prime. Back in 2015, Walmart launched ShippingPass, a shipping membership program costing $50 per year designed. This provided a jumping-off point for Walmart to invest in further premium rewards, resulting in the Walmart + program we see today.
Unexpected shipping costs are one of the biggest sources of friction in the shopping journey. By giving your customers the option of paying for unlimited shipping up front, they’re more likely to support your business and engage in repeat purchasing behaviors that strengthen your bottom line.
Introducing a shipping membership program at your online store doesn’t just create a compelling free shipping offering; it also gives your business a strong starting point to expand into a comprehensive paid program with more premium perks in the future.
As consumer demand begins to pivot from loyalty rewards to paid programs, a shipping membership program enables merchants to stay on the pulse of what consumers want.