In the holiday promotions game, consumers are clearly winning. Long gone are the days when free shipping during the holiday season was a reward. Today it's a must to meet customer expectations.
Most retailers know they need to offer free shipping to stay competitive, but there are issues to address. How do you promote a deal that customers expect in the first place? Most importantly, how do you offer free shipping without cutting into your profit margins?
Yes, Virginia, There's an Official Event for Free Shipping
Free shipping is something Luke Knowles knows a thing or two about. Knowles founded the Free Shipping Day event four years ago, with a website dedicated to letting consumers know where to find free shipping deals for the holidays. Today, more than 1,200 online retailers and merchants have opted to promote their free shipping deal on the website.
This year's big date is Dec. 17. That's when Knowles says the website will reveal the free shipping deals to consumers, with all participating merchants promising delivery by Christmas Eve in the United States. To take part in the in event, online retailers simply sign up (for free) on the Free Shipping Day website.
"For the first time in the event's history, Free Shipping Day is happening on a Monday—typically the busiest online shopping day of the week," Knowles says. "We've been nipping at the heels of Cyber Monday since we started, so we're hoping to meet or exceed their online sales this year."
In 2010, Free Shipping Day sales beat Black Friday online sales by nearly $300 million, Knowles says, becoming the third-heaviest online shopping event in history in the process. In 2011, Free Shipping Day generated more than $1 billion in online sales—an impressive feat for a Friday, which is regarded one of the slowest online shopping days of the week.
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From big retail outlets to small merchants such as artisans on Etsy, Free Shipping Day offers a nice mix of deals for consumers and puts all participants on level playing ground. That's one reason Kristine Lewis, founder of Crazyartgrrl Jewelry, participates in the yearly event.
"There's always an uptick in sales on Free Shipping Day," she says. "Just as important, our logo gets displayed beside the bigger retailers on the Free Shipping day website. For this one day, we're on equal footing with some of the biggest brands in online retail."
Kara Trivunovic, vice president of marketing services at StrongMail Systems, says that there's no reason not to take advantage of Free Shipping Day. "It's one more free place to get exposure, and it's especially important to get on board with the event if your competitors are participating," she says. "If your competitors are there, you need to be."
6 Ways to Swallow the Cost of Free Shipping
Offering free shipping during the holidays and beyond leaves your business on the hook for the waybill. The good news: Free shipping offers are known to reduce shopping cart abandonment, so you'll get a bit of an upswing in sales to help cover the loss on shipping fees.
When it comes to profits, however, retailers must consider all costs to determine when free shipping is good for business and when it's not. Several ecommerce experts offer six tips to help you get the most value when offering customers free shipping.
1. Extremely cheap can be just as attractive. Trivunovic recommends looking at the average cart value before offering a free shipping deal. If you can't profit from free shipping on all orders, then setting a minimum order amount is fine. Keep in mind that a lower requirement will encourage consumers to respond: Free shipping on orders over $100 isn't as good of an incentive as free shipping on a $35 checkout.
For Free Shipping Day, minimum orders are fine for your promotion. If you skip on free shipping and opt to just give customers a good deal instead, Trivunovic recommends you look at your average shipping costs and set an attractive flat shipping fee, such as $5 shipping on any order with no minimum cart value. A low flat fee—from which you can exclude heavy, bulky items that are costly to ship—will help keep your losses in check and still provide an incentive for customers to check out.
2. Take advantage of the best shipping options. Amine Khechfe, general manager and co-founder of Endicia, a Newell Rubbermaid brand, says that online shoppers expect free shipping and that not offering it can mean losing business to the competition.
Still, he says, times are tough. Retailers need to account for every dollar spent and find ways to offset hard costs such as postage. For example, the United States Postal Service is often the most affordable option for packages five pounds or less. "If you aren't integrating the USPS into your shipping mix," Khechfe says, "you are probably leaving money on the table."
3. Promote free shipping early and everywhere. If you want to participate in the Free Shipping Day, Alibaba.com Director of Global Marketing Michael Lee suggests you promote it to build awareness. Tell customers about the deal, and your participation in Free Shipping Day, through emails and social media channels including Facebook and Twitter. "Consider showcasing hot products days leading up to the event to help people build their wish list and reveal special discounts for the day to generate more excitement," he suggests.
Each retailer who participates in Free Shipping Day gets a unique URL to direct customers to its page the on the Free Shipping Day website, Knowles says. Use these URLs on your site, in email or on social media to extend your promotional marketing.
4. Be selective about what you ship for free. If you can't offer free shipping on all items, then Harry Hirschman, vice president of marketing, sales and customer service for Vendio, suggests that you "identify items that are overstocked or that have great margins and offer those to customers with free shipping."
Just because you offer free shipping, he adds, doesn't mean you can skimp on packaging material. Addressing damaged or broken products can cost more in the long run than using proper packaging, Hirschman says.
5. Be fully staffed, stocked and prepacked. When offering free shipping deals—especially for Free Shipping Day, when consumers are expected to make purchases on that particular day—Knowles says retailers of all sizes should be fully stocked, staffed and prepared to meet orders and get them out the door within 48 hours.
Alibaba.com's Lee says online retailers can survive free shipping, and the holidays in general, by prepacking orders before the demand heats up. "Consider packing commonly shipped items and write package weights on the surface of boxes to save time before the rush," he says.
6. Use premium services to offset the cost of free shipping.
Jason Nyhus, vice president of MarketForce technologies for ecommerce service provider Digital River, says retailers must offer free shipping to stay competitive. (Think of Amazon and its two-day shipping policy). To offset costs, layer premium service options on top of the free shipping offer, he recommends.
Free shipping offers are typically the most basic of shipping services options. If you can promote faster shipping times and guaranteed delivery dates at checkout, customers are willing to pay for shipping for better service, especially in the final weeks leading up to the holidays. Nyhus also recommends that retailers leverage other services—including extended warranties, tracking numbers, gift wrap, upselling and cross-selling—to reclaim lost margins from free shipping promotions.
It's Not Too Late to Participate in Free Shipping Day
More than 1,200 stores have signed up for Free Shipping Day, which is Monday, Dec. 17, and Knowles expect more than 2,000 participants by the time the day arrives. "There's always a huge jump in sign-ups a few days before the event," he says.
Based in Nova Scotia, Canada, Vangie Beal has been covering small business, electronic commerce and Internet technology for more than a decade. You can tweet with her online @AuroraGG. Follow everything from CIO.com on Twitter @CIOonline, on Facebook, and on Google +.