If you shopped at an online retailer this holiday season, you probably saw two key words somewhere on the site: free shipping. From Amazon.com to Zappos.com and on almost every site in-between, free shipping promotions were everywhere.
Consumers say that free shipping influences purchase, according to the just released holiday 2006 edition of the Top 40 Online Retail Satisfaction Index, produced by ForeSee Results in conjunction with FGI Research. Of the 10,000+ respondents to this bi-annual research focused on customer satisfaction with the top 40 retailers by sales volume (as defined by Internet Retailer), 41% cited free shipping as the primary factor in their most recent online purchase decision. And, a full 79% of survey respondents said free shipping generally influences them to choose to buy from one retail site over another.
Free shipping, undoubtedly, is necessary to compete in the critical holiday season. But, is it really a competitive advantage? Does it drive short-term sales and long-term loyalty? And, are free shipping offers equally effective for repeat customers as for those that buy from a retail site for the first time?
Through analysis using the credible and proven methodology of the University of Michigan's American Customer Satisfaction Index (ACSI), we found some interesting answers to these questions.
Key Findings:
- 63% of online holiday shoppers said they received free shipping offers, 24% said free shipping wasn't offered to them and 13% couldn't remember if free shipping was offered.
- When offered with restrictions (e.g., tied to dollar value of purchase), free shipping does not significantly improve customer satisfaction and loyalty.
- Free shipping without restrictions is a powerful tool for increasing customer satisfaction, conversion and loyalty.
- Free shipping is a powerful conversion tool for first-time buyers and is even more effective when it doesn't involve restrictions.
- Retailers must offer free shipping to keep up with the competition, but it is no longer a competitive differentiator.
Free Shipping: Need to Have or Nice to Have?
Sixty-three percent of holiday shoppers in our survey recalled seeing some type of free shipping offer. Obviously, retailers like to highlight free shipping but is it effective in driving satisfaction and loyalty?
The answer depends on whether free shipping is truly "free."
Many sites' free shipping promotions come loaded with caveats and criteria, such as the requirement to buy a certain dollar amount of merchandise or purchase by a deadline. In our research, 50% of respondents who said they received free shipping offers remembered restrictions.
The top 40 research shows that retailers shouldn't bother to offer free shipping unless it's truly free, at least not if their goal is satisfaction and loyalty. While restricted free shipping (e.g., "free with orders of $50 or more") may increase average order size, it won't drive satisfaction. As shown in Table 1, there is no difference in satisfaction for customers not offered free shipping and those offered free shipping with restrictions. However, satisfaction jumps almost 5% for customers offered free shipping without restrictions.
Even more powerful is the effect of non-restricted free shipping on future behaviors tied to loyalty. E-retailers benefit from higher scores in both intangible future behaviors like retailer satisfaction and image, and those with direct bottom line impact.
- Customers' image of the retailer jumps by 6% when they are offered non-restricted free shipping compared to not being offered free shipping at all, while restricted free shipping results in a mere 1.2% increase in this score.
- Consumers are almost 5% more likely to engage in positive "word of mouth" marketing (likelihood to recommend) when offered free shipping without restrictions. Interestingly, this future behavior actually goes down when customers are offered free shipping with restrictions compared to not being offered free shipping at all.
- Likelihood to purchase next time, which is tightly linked to "share of mind" and loyalty, goes up 2.4% when free shipping is restriction-free. On the other hand, offering free shipping with restrictions does nothing to impact likelihood to purchase.
Free Shipping: Most Effective for Newbies
The top 40 research shows that free shipping can be an important conversion tool: 9% of the buyers who were highly motivated by an offer of free shipping had never bought before from the retailer.
