Free Shipping or Lower Cost?

Which of these do you think is better to have on an e-commerce site (from a sellers point of view):

Item cost: $20
Shipping: $5

OR

Item cost: $25
Shipping: Free

At the minute I’m thinking option 1 my be better because it would be more beneficial in price comparison sites but would like to hear others thoughts. I see a lot of sites are offering free shipping.

You should run a split test where you do both and see which performs better. I would predict, though, that free shipping will result in more conversions.

I think you should to be honest with your customers, it is always the best strategy. So variant 1 is better from my point of view, ideally you should display all fees involved on the product details/listing pages, i.e.:
price: $20
shipping: $5

regarding variant 2, if I were customer, I leave such store immediately, because most of customers hates this “marketing tricks”.

It is just my opinion :slight_smile:

I agree with DesignMaster, and also, if it were with the 2nd option and I were a customer, I would wonder “alright now how much for shipping”, so in other words I would think there are additional costs once checking out.

Free shipping is one of the most widely used methods of increasing conversions on ecommerce sites. It is not a trick. It is simplifying shopping for your customer. It is eliminating the need to perform mental math, or look up shipping charts, on every single product viewed, in order to evaluate your price and compare it to others. All the top online retailers do it.

DesignMaster, 99% of surveyed consumers do the exact opposite of what you say you do. 72% say that if the ecommerce sites stopped offering free shipping, they’d go to another site that did.

The right strategy in conversion rate optimization is always to do your own test, not follow your gut or advice off a forum. They can help you identify what to test, but it’s the numbers that matter.

“In a recent comScore study, 72% of consumers said that if an e-commerce site eliminated free shipping, they would use another e-commerce site that did offer free shipping. Last week the LA Times reported that this year, nearly 80% of consumers said they were more likely to shop online with a retailer that offers free shipping, compared with 60% who said that last year.“

http://www.grokdotcom.com/2008/11/12/is-free-shipping-a-must-in-this-economy/

41% of the consumers surveyed cited free shipping as the primary factor in their holiday purchase decisions. 79% of those surveyed said free shipping influenced them to choose one site over another.

Ninety percent of participants in the survey said free shipping would draw them to a site, followed by online discounts (69 percent), free or “no-hassle” return policies, (64 percent), free gift wrapping (27 percent) and finally gift certificates (24 percent).

http://www.ecommerce-guide.com/news/research/article.php/3644481

During the holiday shopping season last year we did some user testing through UserTesting.com and realized it was a common problem. I decided to make the flat rate shipping the default, and automatically select free shipping for all qualifying orders (in US over $100). Our conversion rate increased by 50% overnight.

http://www.onlinemarketinginsideout.com/conversion-rate-optimization/3-ways-to-dramatically-increase-your-conversion-rate/

Dan, I agree what the free shipping is one of the most powerful methods to increase the sales. But in this certain case the shipping cost is actually included in the product cost, so I don’t think we shall use the “free shipping” terminology at all.

I already explained my point of view, when I looking for products on the sites I will choose the site which mentioned:
price: $10
shipping: $5

and not the site which mentioned:
price: $15
shipping: FREE

On every site offering free shipping, the shipping cost is actually included in the product cost. Just like the cost of paying salaries, obtaining product, warehousing, order processing, payment fees, customer service, packaging, office space, etc. are included in the product cost.

There is no such thing as free shipping for the store. Offering free shipping by incorporating the shipping cost into your pricing, which is what the majority of top online retailers do, is nothing but simplification of how you present the total purchase price to the consumer.

let me disagree. maybe on most of sites, but not on all.

when free shipping is provided on a permanent basis, when yes, it should be always included in the product cost.

but then the “free shipping” is a temporary offer when it may be calculated any other way.

hope I have made myself clear.

I wonder how those surveys were run?

I know that emotionally many shoppers like “free” shipping very much.

Free shipping is very much a variable cost and not quite like salaries and rent and so on…

When I shop I always prefer shipping costs to be stated and not “free” or included with one exception: when I am buying a commodity type purchase - example vitamins or white running socks and I am close to the free shipping of say $100.

For expensive or high shipping cost items “free” shipping will typically add to the customers cost and is not good.

One reason for this is the cost to ship only one item is typically higher than shipping two items.

So when doing your cost accounting and allocating shipping costs to the price of an item with “free shipping” you need to include the higher cost of shipping one item.

Likewise I do not like overly liberal return policies as this is also a cost that will be allocated to all products.

Now certain shopers like women buying clothes love liberal return policies so…

Well I like free shipping if the price for the goods is fair. Also I don’t mind paying shipping if the shipping is reasonable. I hate paying what I know is too much for shipping.
In your example, it depends on your customers. Are they going to buy just the one product? If they bought two, would the price for shipping be $5 each or flat rate?
I agree with the split test, it is the only way to know for sure with your product, website and customers.

I was asking myself the same question a while back and went with Option 3:

Item cost: $20
Shipping: FREE
Handling Fee: $5

If I saw that I would certainly consider canceling my order.

That just reeks of lying about free shipping to me, e.g. I’m not going to charge you for shipping but I am going to charge you for something else that no one else does to make up for it, nudge nudge wink wink.

Free Shipping has been publicly tested by many large merchants, ecommerce optimization firms and research companies and just about every result proves the same thing – people don’t just like free shipping, they expect it.

This isn’t unique to just one vertical or customer type, it is the standard. Amazon built their business not off of ad campaigns but offering free shipping on low ($25) order minimums and they’ve set the bar for the rest of us.

Not that you have to go down to $25 for a minimum offer but it is an expected part of ecommerce and that’s a fact.

As Dan pointed out you can, and should, test this both in terms of conversion to sale and as a promotion campaign to see how people respond when it’s visibly messaged.

The reason “free shipping” works is simple.

If you charge $10 for shipping, the customer thinks you’re paying $6 to USPS and keeping the difference.

Also, beware of trying the “free shipping but not to everywhere” trick. The very existence of such small print is a turn off, even if it doesn’t apply to you… so don’t leave the Alaskans out in the cold :wink:

no one else does? tssss c’mom

First of all…
When I am out there shopping, I am looking for reasonably priced quality items, I am not out there playing ethics cop. The average bargain hunters, I consider worse, these stereotypes will punch credit card #'s into non-ssl secured sites.

Now…Have you never bought a used book from Amazon?

What difference does it make to you if the book is priced at $2 and shipping is $10, opposed to the book priced at $8 and shipping is $4. It may not be called HANDLING FEE there.

2nd:
You’d be surprised how many sellers engage in a strategy of reduced item cost and increased shipping cost - which is usually setup as a handling fee within your shipping module admin and calculated into the real time UPS,USPS, FEDEX etc. shipping rates - particularly on comparison search engines.

Having a lower product price than your competitor often leads to a better position on comparison search engines which may result in more visitors + you are likely to catch those type of buyers who indeed think that you have the lowest price and the ones that do not have time or are in the mood to jump from site to site to see if they can get the item a couple bucks cheaper elsewhere.

but hey, it’s just my 2 cents :slight_smile:

Hotwire is a good example.

They load the taxes and fees right
into the rental car price, airline ticket
etc so it’s really easy to see what the
“real” cost is going to be.

It makes it so much easier to buy that
I use their site all the time even though
the final price is almost always the same,
or marginally lower, than buying from
another site.

You also need to highlight the
free shipping as part of the sales
process.

If you simply give away the shipping
at the end, it does not produce the
incentive to buy …

Option 1:
Transparency in pricing is good because it builds rapport with users.

Option 2:
“Free Shipping” is most powerful and persuasive word in economy.

It depends how you drive your customers. Like from comparison search engines, user visit stores for best pricing and this is major reason why stores have large abandonment rates.

Another thing to bear in mind with “Free Shipping” (which i run on one of my sites) is that you don’t have to work out how much the P&P you should charge (due to weight, distance etc).

I generally knock on a couple of quid to my products to cover this. I lose when people ship to the Orkneys, but gain a little bit (in terms of hours saved) in most places.

One thing you need to consider with both integrated shipping and “handling fees” are how they affect sales tax. Shipping fees are generally not not taxable in the US, however a handling fee is taxable. Also any profit made on shipping is taxable and if shipping is rolled into the purchase price, then the whole price is taxable.

Your mileage will vary depending upon what state, country, etc. you are in… here is a quick example of how it’s treated in the State of California:

http://www.boe.ca.gov/sutax/faqpurch.htm#10

Andy