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How to offer free shipping during the holiday season

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Free shipping. Two words that send a shiver down a merchant’s spine. After all,  a free shipping offer is never truly free; someone has to foot the cost – and increasingly, it’s the retailer.

But with the holiday season fast approaching, offering free shipping is going to be more important than ever for merchants to gain a competitive advantage. The ongoing COVID-19 pandemic is set to drive online shopping activity to new heights this year, meaning perks such as free shipping will play a big role in retailers’ ability to attract shoppers. 

Yet offering free shipping during the holidays also has some major drawbacks for online stores. But with the genie now firmly out of the bottle, merchants will need to make free shipping work for them by creating a strategy that enhances customer satisfaction while minimizing the impact on their bottom line. 

But is this really possible?

Yes! And we’re going to tell you how.

Why offering free shipping is crucial this holiday season

With COVID-19 set to impact the holidays for the second year running, this has led to a massive shift in shopping behavior. Online shopping is once again set to dominate, with current forecasts putting holiday ecommerce sales at $206.88 billion in 2021 – nearly one-fifth of total U.S. retail sales.

This means that once again, consumers expecting ecommerce businesses to implement a suite of services to make shopping online more frictionless than ever – and free shipping is right at the top. 

According to a holiday survey by Shopkick, a whopping 94% of customers said that free shipping was the perk they wanted most when shopping online this holiday season, followed closely by fast shipping (60%) while in-store pickup (BOPIS) and “Buy Now, Pay Later” come in much further behind at 19%.

With many customers still watching their wallets this year, it’s hardly surprising that free shipping is the biggest drawback for those either unwilling or unable to visit stores. But with shipping growing more costly, offering free shipping during the holiday season is a bigger commitment than ever before – albeit one with big rewards attached.

Here’s what merchants need to consider to create a free shipping strategy that maximizes profitability this holiday season:

Offering free holiday shipping: The pros

More consumers will want to shop with you

This one is pretty simple. By offering a free shipping perk, you’re going to experience higher conversion rates. According to the Q2 2021 Consumer Trends Report by Jungle Scout, 66% of consumers now expect retailers to offer free shipping on all orders, while a further 80% expect a free shipping threshold to exist. Moreover, 61% of online shoppers say they are more likely to buy additional products if a free shipping option is available.

Despite this, free shipping is not as widespread as we might assume. 65.4% of ecommerce stores offer free shipping at least some of the time, but just 17.5% offer free shipping on all orders. The latter tends to be dominated by large retailers such as Target and Zappos who can absorb the cost of shipping much more easily than independent online sellers. But if you fall into the latter group, this gives you a valuable competitive edge during the holiday season. 

Increased customer satisfaction = higher customer loyalty

It probably won’t come as a surprise that free shipping is closely tied to the satisfaction of your customer base. Extra costs such as shipping can add considerable friction to the shopping experience. By removing this barrier, customers are much more likely to enjoy shopping with your brand – and return to shop with you in the future. When 74% of consumers say they are likely to buy based on experiences alone, this makes free shipping a key factor determining whether the experience is positive.

New customers are more likely to covert if returns are free

When we talk about free shipping, we aren’t just talking about outbound orders. Return shipping plays a key role not just in customer satisfaction, but whether they’re willing to buy from you in the first place.

Most of us know from experience that shopping with an unknown brand feels like a bit of a gamble. During the pandemic, consumers have shown greater willingness to experiment with new brands, with 46% of US consumers having switched brands or retailers at some point. Policies like free return shipping help provide reassurance that we won’t lose out if the purchase isn’t right – to the point where many consumers won’t shop without it. 

According to a survey of Shopify returns management apps, 83% of consumers say that they read a merchant’s return policy before buying, while 71% say that restocking or shipping fees are barriers that prevent them from purchasing from a retailer.

Transparency over shipping charges means lower cart abandonment

If there’s one thing that shoppers hate, it’s a lack of clarity over the final cost of their order. Surprising your customers with shipping fees during the checkout process is almost guaranteed to scare people off from finishing their order. Unexpected shipping costs rank as the number one reason for shopping cart abandonment in ecommerce. 

Why? Because waiting till the very end to factor shipping into your pricing makes an online retailer look dishonest. Trying to represent your products as being better value than they actually are is only going to damage your brand. By publicizing a free shipping offering, consumers can shop in peace without having to worry about how much their order is going to cost.

Offering free holiday shipping: The cons

Shipping is more expensive during the holidays

The cost of shipping can fluctuate throughout the year due to peak season surcharges by major carriers. But the COVID-19 pandemic has made seasonal surcharges an almost permanent fixture. With small parcel volumes during the main part of the year reaching holiday season highs, parcel networks are preparing for the peak of the peak – and it’s not going to come cheap for merchants.

Surcharges for the 2021 holiday season are specifically targeting high-volume shippers who take up the most space, as well as levying additional fees for residential delivery due to inefficient journeys. In sum, the more successful your ecommerce operation is, the more surcharges you’ll have to pay. 

If your ecommerce business is shouldering the cost of free shipping during the holidays, these surcharges can seriously impact your profitability. You may need to bake shipping costs into your product prices or select slower shipping speeds to keep costs down, which is likely to displease customers in the age of same-day shipping.

Consumers are more likely to expect free return shipping

If outbound shipping is free for your customer, they’ll likely expect free return shipping also. However, footing the bill both ways puts a massive strain on your business – especially during the holidays. 

According to the National Retail Federation, 13.3% of merchandise sold during the 2020 holiday season ended up being returned. Add return shipping costs on top of this, and your gains from the holiday season can be wiped out in an instant. However, 62% of consumers report being frustrated when they have to pay for return shipping or packaging. Friction like this during the post-purchase experience could shorten customer lifetime value – which is even more costly for your business.

Free shipping may shrink your AOV

While your customers will love a blanket free shipping policy across product categories, this can have the unintended effect of shaping shopping behaviors in ways that are harmful to your bottom line. Offering free shipping on every order gives loyal customers no incentive to condense their online orders by purchasing several items at once. This can cause your average order value to shrink, especially if you sell low-cost items.

Amazon offers a great example of what happens when free shipping policies are extremely generous, such as its extended free shipping policy which allows free shipping on any eligible order placed within 24 hours of the initial qualifying order. A Walker Sands study found that on average 2 in 5 US consumers receive 1 to 2 packages from Amazon every week, which jumps to 50% for customers aged 18-25, and 57% for customers aged 26-35. For Amazon Prime members, this jumps to multiple orders per week.

Free shipping strategies to consider this holiday season

Add a minimum order value. Blanket free shipping can cause more problems than it solves, so introducing a free shipping threshold during the holidays is a great way to prevent shipping and fulfillment costs from cutting too far into your profit margins. The size of your minimum order amount will depend on metrics such as your average shipping cost per order and whether you can use higher volumes during the holiday season to set the threshold lower.

Multiple delivery options. It’s extremely difficult for merchants to achieve the optimal balance between free and fast with just a flat-rate shipping option. While some will be happy with the speed as long as it’s free, others may find it too slow for their needs and may choose to shop elsewhere. Offering one or more expedited shipping options in addition to free shipping is a great way to address all of your customer’s needs and provide more flexibility.

Free shipping on exchanges. If free returns shipping is too costly for your business, consider only offering free shipping on exchanges instead. Exchanges are a valuable opportunity to prevent revenue from slipping out the door once the holiday season is over. Free shipping is a form of positive reinforcement that makes exchanges much more attractive, thus shaping customer behavior.

Offer free shipping as a limited-time special. Increasing buyer urgency with a free shipping promotion is a great way to drive sales during the holiday season. It’s also a powerful marketing tool for your social media channels to enhance your value proposition and upsell customers. Creating a dedicated promo code for free shipping is the easiest way to offer this perk.

Turn free shipping a paid loyalty reward. It’s no secret that customers love loyalty programs – especially the ones that give genuinely useful loyalty benefits. Given the love that customers have for shipping programs like Amazon Prime and Sephora Flash, it shouldn’t as a surprise that so many are willing to pay it forward. 64% of program members say would be willing to pay to get benefits including expedited free shipping. Best of all, 62% of consumers are more likely to spend more with the brand after subscribing to their paid loyalty program.

How can I offer free shipping without hurting my bottom line?

Partnering with an experienced fulfillment provider gives merchants access to favorable wholesale shipping rates with both major and regional carriers, meaning you don’t have to choose between offering free shipping and being profitable during the holiday season. Even better, Whiplash’s SmartRate selection tool allows merchants to compare carrier rates with USPS, FedEx, UPS, and more in real-time at one glance, ensuring that your business can achieve the perfect balance of cost and speed. With the backing of an experienced team, Whiplash can design the optimum free shipping strategy for your business that maximizes customer satisfaction for success during the holiday season – and beyond.

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