We’ve all heard it: “Fast and free” is the ecommerce shipping mantra. But what does this really mean, and what happens if free shipping isn’t an option? Covering the cost of shipping can put a big strain on retailers — especially those that aren’t the size of a certain Seattle-based behemoth — and some shippable goods are too heavy or bulky to make free shipping a sustainable offer.
Diving into the data of shipping expectations, cart abandonment and consumer psychology gives an important perspective on how retailers can approach shipping charges. Depending on the industry, solutions like price adjustments, minimum purchase thresholds and even updating your logistics mix can boost your competitiveness and, more importantly, start converting more customers.
Why do ecommerce shoppers expect free shipping?
First let’s get some important stats out in the open: More than three-quarters (76%) of shoppers say they want free shipping for online orders. And customers expect free shipping fast; 62% want their orders within three business days, while 96% of retailer respondents said they yield to the masses by offering some type of free shipping option at time of purchase.
But what’s driving this shipping demand? It all goes back to our friends in Seattle. When Amazon first offered its Prime subscription in 2005, so began an exercise in consumer psychology. By offering free shipping, even through a deferred cost, Amazon set up “fast and free” expectations in customers’ minds and stimulated a competitive response from other retailers.
Fast forward almost 20 years, and free shipping has become a baseline online shopping expectation.
How much are people willing to pay for shipping?
“Fast and free” is the starting point, but plenty of scenarios exist to rationalize charging for shipping, including how much shipping goods costs retailers every year. For instance, Amazon spent $76.7 billion on shipping in 2021 — right in line with retail industry standards of spending 15 to 20% of sales on shipping costs. Apply that figure to $870 billion in U.S. ecommerce sales for 2021, and you’re looking at north of $130 billion spent on shipping goods around the country.
Amazon customers often forget that they’re paying for “free” shipping upfront when they purchase a $139 Prime membership. In 2021, these Prime fees offset Amazon’s shipping costs by $25.2 billion. Likewise, Walmart Plus customers pre-pay their shipping fees with a $98 annual membership fee. More than three-quarters of online shoppers surveyed by X Delivery have one of these memberships or a Target RedCard; only 12% have no paid retail membership of any kind.
Other than those initial membership outlays (save for RedCard, which is free), the same study showed consumers are disinclined to pay additional shipping charges. While 75% of customers have paid extra for faster shipping in the past, $7 is about the max consumers will pay to cover shipping costs. Other research from Deloitte showed that 30% of customers won’t pay more than $5.70 for same-day delivery and only 12% of customers would pay a meager 50 cents for three- to seven-day shipping.
Shipping costs disproportionately affect cart abandonment
Commonly cited research by Baymard Institute indicates that consumers abandoned 68% of online shopping carts in 2021. This number hasn’t changed much since 2017, well before pandemic-driven increases in online shopping.
As such, that consistent data shows that about 70 out of every 100 ecommerce shoppers failed to convert into customers which, in turn, amounts to $18 billion a year in lost sales. But why? Shipping costs are a growing reason.
Baymard’s December 2022 quarterly research found that 60% of online shoppers abandoned carts due to higher extra costs and fees. Similarly, 23% of surveyed shoppers said not being able to calculate the total cost up front kept them from finishing their purchase.
Way back in 2014, Harvard Business Review identified the consumer psychology behind the trend. Consumers evaluate prices sequentially, and each subsequent price in a transaction is judged for its fairness. Prices that seem unusually high or get added unexpectedly late in the transaction have a negative effect on shoppers’ satisfaction with the transaction as a whole. Given the cart abandonment stats shown here, this research seems to hold up.
5 ways to solve for shipping without losing sales
Habit and reason say any online shopper should be prepared for taxes and shipping fees at the end of a transaction, but shoppers often behave emotionally rather than rationally. Knowing this, retailers can leverage emotional decision-making to help push more customers through to the purchase button. Crowdsourced delivery can lend a helping hand in those conversions.
Solution #1: Maximize your shipping rates
If your business is overpaying for shipping, improving your rates will help reduce how much you have to absorb in overall shipping costs. Has your ecommerce platform negotiated rates with a partner that you’re not taking advantage of? Reach out to your logistics partners to ensure you’re getting the best possible rates, and find out what you can do to improve them.
Onboarding a crowdsourced logistics platform like Roadie, for instance, could help you improve rates in general (especially for oversized or heavy orders), while also increasing your opportunity for fast delivery. Fast and free is the name of the game, after all. Look into it now, and revisit this process regularly, as shipping rates change.
Solution #2: Raise prices
Customers expect free shipping and will react emotionally if it’s not offered, but covering costs with your profit isn’t sustainable. The easiest option is to bake shipping costs into the price of the products themselves. To do this, calculate your average shipping costs, and consider which products can accommodate raised prices. Focusing on the most commonly purchased products can help recoup costs faster, but could make products less competitively priced overall. Spreading the increases across your entire inventory would have a more subtle effect, but may not recover shipping costs as quickly.
Solution #3: Implement a free shipping threshold
This is a common tactic among retailers, and one that customers are used to seeing. Shopify says 48% of customers will add more items to their cart to qualify for free shipping, helping overall sales in the process. Bonus: Customers that were already expecting to spend an amount above your threshold will see free shipping as further emotional validation of their purchasing decision.
Mock up a range of pricing combinations and delivery scenarios to determine the right balance for this approach. Using promotional offers as incentives can be a good way to encourage conversions and help you gauge how amenable customers are to various shipping thresholds.
Solution #4: Offer a range of delivery options
Though most retailers offer free shipping, it’s not always the default option. Competitive retailers know that providing a range of delivery options gives customers the freedom to choose when their purchase will arrive, by what delivery method, and how much they’re willing to pay for it, all at the point of sale. These selections may differ with every transaction, but need to be available for every customer, no matter where they live, what they buy, or when they need it.
Scouting your competitors’ range of delivery options and pricing is a helpful step to know what your shared customer base is considering. As you work on your own approach, keep in mind the data collected on how much customers are willing to pay, and set your pricing strategically.
Consider this scenario: You pay $3.50 for ground shipping. Because of customer demand, you choose to set “ground shipping” as a free option because it’s the slowest, least expensive service. You absorb $3.50 for every order shipped by ground.
But Roadie’s logistics management and crowdsourced delivery platform enables you to provide your customers a same-day delivery option for $7.50 per order, and your customer base has shown a willingness to pay $5 for such ultrafast service. The net cost to you becomes $2.50 – a full dollar less than the free shipping option, widening your customers’ delivery selections and creating a win-win shopping experience for both you and your customers.
Solution #5: Highlight your free returns policy — or create one
Make sure your customers know all the benefits they’re getting from doing business with you. If you’ve chosen a crowdsourced delivery partner to help reduce your logistics costs, can that provider also give you a way to provide a value-added free returns process?
Retailers that work with Roadie, for instance, can leverage crowdsourcing to pick up product returns at the customer’s address, saving the consumer a trip to a brick-and-mortar store or the post office. Roadie works the same whether the driver picks up an item from a warehouse or a customer’s doorstep, ensuring no unexpected costs or fees for the retailer regarding returns.
It’s possible to keep shipping costs under control
Free shipping doesn’t have to ding your bottom line. With the right understanding of consumer psychology and a willingness to experiment with new approaches, retailers can offer a range of delivery options to meet the needs of all customers. Some will want it fast, most will want it free, but once you’ve tweaked your shipping rates and product prices, those fees can be overcome in almost any circumstance.
Leveraging your crowdsourced delivery partners can sweeten the deal even more. With the ability to offer fast, free shipping and free returns, your customers have new reasons to choose you over your competition. Converting even a fraction of customers who would have otherwise abandoned their carts can be that incremental increase you need. The Roadie team is ready to discuss how you can use crowdsourcing to boost your business and your bottom line.
