The Psychology Of Free Shipping and How It Drives Customer Retention

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The Psychology Of Free Shipping and How It Drives Customer Growth

Did you know that the cost of acquiring a new customer is 5X greater than retaining an existing one?

The fact that it costs much more to acquire new customers than to retain them holds true for businesses across all sectors. However, it is especially true for the ever-growing flock of eCommerce companies. eCommerce businesses need to work harder to retain their customers in order to thrive among the immense competition.

But how do you go about doing that? To prevent your customers from switching over to your competition, you need to create smooth and flawless experiences for them. Only then will they consider choosing you over another brand that offers the same products at comparable prices.

There are many different factors that set top eCommerce businesses apart from others. These include the user experience, product pages, shipping, and return policies. It isn’t enough to get your customers to browse through your catalog. To encourage them to buy, you need to offer them something attractive.

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Let’s take a look at how free shipping can help you grow and retain your customers.

Simplify the shipping process

Good products and cheap pricing can help you grab the attention of consumers. You might even be able to encourage them to add products to their carts and proceed to place an order. However, on the checkout page, if they discover that they need to pay a hefty sum for shipping, chances are they will abandon their carts.

Usabilla conducted a survey of 2000 U.S. retail shoppers that found that high shipping costs were the biggest cause for cart abandonment. 58% of consumers in the survey said so. Many of these shoppers also reported that having to re-enter shipping information is their greatest cause of frustration.

Also, according to Statista, 63% of shoppers in 2016 and 54% of shoppers in 2017 abandoned their carts due to excessive shipping costs.

Free shipping is a great incentive for acquiring new customers as well as retaining old ones. It can go a long way to encourage your customers to remain loyal to your brand. And customer retention only comes from loyalty.

Amazon has largely popularized the concept of free shipping along with fast delivery. No wonder their customers are willing to purchase Prime memberships that offer free shipping with same-day, 2-hour, or 2-day deliveries. The benefits of this program clearly outweigh the cost.

Try to come up with similar innovative strategies to reduce your shipping costs to compete and survive.

Simplify the Shipping Process like Amazon for Free Shipping

Image via Amazon

How to reduce your shipping costs

Free shipping can eat away at your profits. So you need to develop strategies to strike a balance between free shipping and profitability. One way to do this is to include the shipping cost in the product price. This way, customers are not in for a shock when they head to the checkout page.

Here are some ways in which you can reduce your shipping costs:

Choose the right carrier

Invest some time and effort into finding a suitable third-party logistics company. The top-rated delivery services can seem to be expensive. However, there are many smaller providers which deliver quality services at great prices. But remember not to compromise on quick delivery for the sake of saving costs.

You must also account for contingencies such as fuel surcharges, Saturday deliveries, and residential delivery charges. Some carriers charge extra if you require a signature from recipients. It is useful to understand these costs in advance and rule out the ones that are not necessary.

Often, negotiation with the logistics service provider can help to reduce costs. They might offer discounts for bulk orders or high annual shipping volumes. It can also be helpful to get your shipping insurance from a third party, instead of getting it from the carrier.

Size matters

Another crucial factor that decides the shipping cost is the size and weight of your package. In order to reduce shipping costs, you can modify the packaging so that the overall size and weight decreases. In fact, many carriers also provide their own packaging, for which they don’t charge by dimensions. Of course, take care not to jeopardize the product.

Online and prepaid shipping

Online and prepaid shipping is a boon for small and niche eCommerce businesses out there. Printing postage online saves you the hassle of going to the post office and reduces your costs as well.

Many shipping platforms such as USPS provide additional facilities such as free pick up, priority mail delivery confirmation, and free shipping supplies when you ship with them.

Another useful strategy is to buy shipping labels in bulk. This way, you won’t have to pay for each package individually. It works best when you know that you will be delivering packages of a similar size and weight over a period of time.

Cost vs Speed: The dilemma continues

It’s safe to say that we have established how important free shipping is for customer retention. However, over-promising and under-delivering will not help your business.

Let’s say a customer has placed an order and it takes weeks for the order to be delivered. The customer is likely to never come back to your platform for a second order. The speed and quality of your delivery services are just as important as their costs.

Let’s consider Amazon Prime once again. For $119 a year, Amazon provides their Prime members with free two-day shipping along with other perks.

According to a study by CIRP, Amazon’s retention rates have increased with time. About 73% of those who opted for a trial, paid for the entire year. Additionally, 91% of their first year subscribers renewed for the second year, and 96% of second year subscribers renewed for the third.

Chart 1 US Amazon Prime Retention Rate (travelling twelve months) study by CIRP for free shipping

Image via CIRP

This goes a long way to suggest how loyal Prime members are towards Amazon. Once someone signs up for an Amazon Prime membership, they stick to it.

When you select a logistics provider, you must try to understand the kind of reputation they have. Only if their services are reliable enough can you promise certain delivery dates to your customers.

Delivery delays can damage your reputation as customers are quick to post their negative reviews on social media. According to a Usabilla survey, 17% of shoppers refused to return to an online store if there was a delivery goof up.

However, despite your best efforts, there might be scenarios in which an order is delayed or worse, damaged or lost. You should always keep the customer informed about any such unprecedented situations. Customers prefer businesses that are transparent in their dealings.

You can also install a tracking feature on your website or app, so that customers can easily check the order status.

Ease of return

Despite delivering the best products within the promised time, some of your customers might want to return their orders. There can be a number of reasons for this, but there’s no point trying to speculate what they might be. Instead, you need to ensure that they have a painless experience while returning the products.

As a user, I am more likely to prefer an online store that offers a flexible return policy that includes a reasonably large timeframe for returning orders and a free pick-up service. I wouldn’t want to go through the hassle of shipping the product back, even if the company bears the cost.

However, there are a few things you can do to minimize the chances of customers returning your products. Share as much information about the product as possible before they buy. This includes the correct dimensions and color.

For apparel, fitting apps like Virtusize can help users choose the right size and style that suits them. Providing a “try and buy” option can also eliminate the need for a separate pick-up for returns.

Also, once a customer raises a return request, you can send them a short questionnaire. This can help you understand the specific reason for their return request. Then you can use insights from their feedback to improve your services further.

Follow up

Some customers appreciate follow-up emails that ask for their feedback. It makes them feel valued and acts as a reminder of their flawless experience with your business. This also gives you an opportunity to improve your services.

Little MOO, for example, sends post-purchase feedback surveys to their customers to collect useful insights into the customer experience they provide.

Follow up from MOO for Free Shipping

Image via Shopify

Customers also prefer to be updated about the latest price drops, discounts, and offers that are relevant to them. An efficient follow up system can help pull them back to your website. However, take care not to bombard them with unnecessary updates.

SurfStitch, for instance, sends out re-engagement emails that showcase products, offers, or features that their customers might have missed. Such offers or the availability of new products can make customers want to buy from you again.

SurfStitch for free shipping

Image via HubSpot

Loyalty based programs and reward points can also tempt existing users to return to your website. Wigs, for example, sends emails that show how many reward points their customers have in their wallets along with other lucrative offers.

Loyalty based programs from Wigs for Free Shipping

Image via Smile

Conclusion

eCommerce has become a tricky business proposition. The novelty of owning an online store is lost, thanks to the plethora of options available in the market. To woo customers in such a competitive environment is not enough. You must strive to develop long term relationships with these customers.

Free shipping along with speedy delivery can help you sustain strong relationships with your customers. You must place your customers’ needs above all and cater to them. Only then can you expect to build a pool of loyal customers who will swear by your brand.

What are your views about free shipping? Do you think it works for customer retention? Let us know your thoughts in the comments.

Guest author: Gaurav Sharma is the Co-founder of Attrock, a result driven Digital Marketing Agency. He’s a certified Google Analytics and Adwords specialist who regularly contributes to reputed publications like the Huffington Post, TechCrunch and many more. He leverages his experience and knowledge as a digital marketer to help influencers monetize their efforts and eCommerce and SaaS companies grow their revenues. When he isn’t inspiring his team of devoted individuals to achieve more, he can be found globe trotting, sampling all that the world has to offer.

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