Does Free Shipping Close the Sale?

The trend is clearly towards a free shipping model for a lot of the big online merchants. Are they on to something that the smaller seller should also consider?

When the issue of "free shipping" comes up on the average ebay-centric message board, the response is always the same...

"I can't afford to offer free shpping!"
"It's an Ebay plot to suck down more fees!"
"Buyers don't need free shipping - they want combined shipping discounts"

I believe that a lot of these sellers are missing the point. We are no longer living in the online world of 2000. Buyers are not only more online savvy than ever before, but the availability of online retail options is now immense.

While a lot of sellers weren't paying attention, the online world became a very competitive place to do business. Just like the real "brick-n-mortar" world, the small mom and pop shops are getting swallowed up by big box discount retailers offering convenient online shopping and....yes....Free Shipping.

The small online retailer will need to step up to survive. Buyers don't care about your costs - if they can get it cheaper or with less hassle somewhere else, they will.

So why are all the big guns of the online retail world offering free shipping? Well, it's all in the numbers and it's all about shopping carts.

Not those things you wheel around the grocery store - but those computer carts full of items ready for checkout. When was the last time you saw someone "in the real world" take the time to pick out a cart full of goodies, roll up the the cashier, let them tally it all up, and then go "oh, no way, I'm outta here!". Well, in the online world of retail, this is what happens more than half of the time - and most retailers don't even realize it.

In 2004, Forrester did a study of online consumer behavior to try and explain why nearly half of all online shopping carts are abandoned before completing checkout, and why nearly 90% of web shoppers say they have abandoned carts at some time. About 60% of them leave the carts specifically because of shipping costs. But if you look hard at the numbers there is overlap - most of the remaining leave because of total cost (which includes shipping).

Another study in 2008 by Paypal also had the #1 reason as shipping costs and indicated a 66% abandoned cart rate (higher than the Forrester study 4 years earlier).

The overriding conclusion, however, isn't that everyone should therefore offer free shipping. But what we do have is a major problem in search of a solution.

When a buyer goes to the hardware store for a wheel barrel, they look at the price tag and go to checkout. They don't care how much the item weighs, how the merchant had it shipped, or how much the stock boy makes per hour. They see the price - perhaps calculate tax - and get rung up. The final bill meets their expectations and they pay.

All costs other than tax are embedded - that's how "offline" retail is generally done.

The point of free shipping is extremely simple. It's to increase the predictability of the purchase for the consumer. Just like the local hardware store - there are no surprises. When the online customer gets to checkout, the final bill meets their expectations.

When was the last time you got an email for an online "special deal" that didn't include free shipping? The reason why 99% of all online specials now offer free shipping is because buyers have become immune to the $9.95 deal (+ s/h) - cause they know they are gonna get stuck for big s/h.

Nothing is simpler for the buyer than free shipping.

Back last year when the Ebay Power Seller bonuses started, I needed to change out about 500 items. What I did was upload all the new items w/ free shipping so they would be ready when the old items expired in a week or so. The sales on the new items w/ free shipping were excellent. In fact, I didn't sell any of the expiring items (with shipping costs) during that overlap time. Even though - for multiple items - it would of been cheaper for buyers to pay the s/h with combined discounts.

While combined shipping discounts seem simple to the (myopic) seller, they are not simple to the buyer. Every seller has a different "calculation" and expects the buyer to read carefully and figure it out. We all know that buyers don't read :)

Nothing is simpler for the buyer than free shipping.

How many of the sellers reading this have ever done any hardcore face-to-face sales? I was practically raised in a retail store , and my wife is a realtor, so the idea that a "sale" is a "state of mind" is something I don't even have to think about. There's an old saying that the "last person to talk loses". That's because a buyer makes a purchase after completing a mental calculation - if you interrupt the process before it's complete (in other words, you have already closed the deal and just don't know it yet), you run the real risk of creating doubt and blowing it.

That's what the shipping calculation does to the online buyer. I click on what I want - pull the handle on the slot machine - and wait for the final numbers to roll in. then I do "damn, look at those shipping costs". IMHO, the worst thing you can do to your item is use a shipping calculator. Every time I've used one, I kinda hold my breath, brace myself, and say "wow, that's a lot - maybe buying this online isn't a good idea after all". It's that last word that breaks the deal before the close.

Nothing is simpler for the buyer than free shipping.