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Hidden Marketing: The Free Shipping Paradox

Jim Babb
Jim Babb
Thanks Amazon

Modern marketing is constantly evolving. One advantage of working with clients is that we get to examine real-time learnings across a variety of different accounts. Researching what other companies are doing is another great way to keep on top of what's effective.

Hidden Marketing is a series we’ve created where we learn from market leaders by becoming their consumer. We did this by going through the check-out process on the websites of the 50 largest DTC brands. We then recorded and analyzed their strategies.

50 top direct to consumer brands

Now more than ever, each touchpoint in the customer experience should be considered part of your marketing. And this particular moment of conversion holds numerous opportunities for any company selling products or services online. Even if you're not in the e-commerce biz, there's a lot that can be learned from these examples about creating systems that encourage users and customers to take action.

Casper Mattress Shipping Policy

This Hidden Marketing piece is about free shipping. Is it a must-have for the modern consumer brand? Amazon Prime set the stage for a new normal. That normal includes free, two-day shipping. And DTC brands are leading another evolution of shopping - one where their store is a website and every detail of the customer experience counts. DTC mattress company Casper has even made free shipping a core value proposition

Over 74% of online shopping carts are abandoned in the retail and fashion industries.
Online shopping cart abandonment rate by industry

A study from the Baymard Institute found that 58.6% of US online shoppers who have abandoned a cart within the last three months were just browsing.

But the second most popular reason was “unexpected costs at check out” - mainly shipping, taxes and fees. This reason alone still accounts for 22% of abandoned carts. Free shipping can secure A LOT of sales. It can also help encourage customers to purchase who may not have added to the cart in the first place. Have you ever chosen one brand over another because they offered free shipping? We certainly have.

It's easy to jump to the conclusion that free shipping will transform your business and increase your sales. But the truth is, there's no such thing as free shipping. Someone is paying for the shipping, and ultimately that's either the customer, the business, or most likely, both. By raising your prices and offering free shipping, you may end up with fewer carts in the first place because of the higher costs of the goods you’re selling. If you don't raise prices, you could end up with a few more customers and a lot less profit.

We looked at shipping prices of 50 of the biggest DTC brands to see whether they’re all following the Amazon model, or if they're taking a different approach. The companies we examined included Warby Parker, Casper and Away, while we also looked at 47 other companies that sold physical products in the home, hygiene and beauty, health, food, apparel and accessories industries. Here's what we found:

56% offer free shipping (and frequently returns) automatically, no matter what the purchase price or the product.
Shipping options offered by direct to consumer brands

The majority of companies we studied did offer unconditional free shipping. Unsurprisingly, the overall industry seems to be trending in that direction. That 56% is far from universal though. And there appear to be specific criteria that most of these companies meet.

Of those companies offering free shipping, we found that almost all of them fall into one of two categories:

They only sell a subscription product.
It is generally assumed shipping is part of the cost for a subscription because you’re not just buying a product - you’re buying a service. Additionally, committing to pay for something every month, week or year is a big choice. There needs to be an incentive.

Exception: The one instance where a subscription did not yield automatic free shipping is custom skincare company Curology. The company charges $5 for shipping if the customer choses the 30 day supply option. If they take the 60 day supply subscription, shipping is free.

They exclusively sell products that cost over $150.
Companies with high price point items ($150+) all offer free shipping. It makes sense. The cost of shipping is a smaller part of the margin and easier to swing. But also, when making a big financial commitment, they want to feel like they’re getting value for their money.

Exception: Native Deodorant - a rising star on the scene which offers free shipping on everything, including a one time purchase of an $8 body wash. We didn’t see this anywhere else.

If all the products you sell are either high-priced or subscription, you might want to consider free shipping on every order. But, many products don't fit this mold. So it's helpful to understand that this trend might not apply to your offerings.

However, if you aren't offering any free shipping options at all, you're definitely deviating from best practices.

Every single company we looked at had some way to get free shipping on an order.

Many offer free shipping on orders over a specific amount. This reduces costs for the business, while also incentivizing customers to make larger purchases. These cut-offs are generally between $50-$150. This is a particularly popular practice in fashion and beauty.

Subscription-based companies such as Harry’s and Quip do not offer free shipping on one-off purchases. Instead, these companies incentivize customers by offering free shipping to those who subscribe to regularly repeated purchases of their products.

Some companies use free shipping as incentives to collect data, often to get customers on email distribution lists, or in the case of Summersalt their phone number.

Summersalt Free Shipping Policy

We know that these companies have teams of people testing, researching and optimizing their checkout process. This means that hundreds of growth marketers agree that if you aren’t using free shipping as a motivator for your customers, you’re likely missing opportunities both in conversion and brand love.

Here are some other creative ways to leverage free shipping:
The Part and Sum Perspective:

We believe that people will pay to ship for unique and brand-forward products they can’t just find on Amazon. For many, it’s worth $5 to not have to make a trip to the store. If offering free shipping has a significant impact on your margin, you should not offer it to everyone.

However, everyone likes free shipping, and it’s an extremely effective tool to convince customers sitting on the fence to make the final purchase. We believe it’s important for almost every brand, although there are always exceptions, to find a way to implement free shipping into their offerings. We also encourage testing it out in a few different ways.
One way our strategists determine free shipping thresholds is by plotting out the frequency of different cart combinations to look for upsell opportunities.

For example, imagine you are a DTC watch company with a $110 free shipping threshold:
40% of your sales are $80 watches.
15% of your sales are $80 wallets plus a $20 strap.
1% of your orders are $80 wallets plus two $20 straps.

By lowering your free shipping threshold to $100, you may find that a much larger percentage of people opt into buying an additional strap with their watch. You may even find that conversion rates go up across the board.

It's important to consider free shipping, but that doesn't mean you have to slash your profits. In modern marketing, small changes can make a big difference.