No such thing as *free* delivery

Monday, 17 November 2008

The facts: For retailers, it's looking to be a blue Christmas. "Faced with a more expensive feast," states a report from Verdict Research, "consumers will be selective with their food shopping and careful with their gift purchasing, buying fewer items of both."

To boost holiday sales, marketers will have to experiment with promotions. And one promotion that's always popular with home shoppers is free delivery.

The buzz: The New York Times last year ran a story demonstrating how free or discounted shipping increased sales significantly for a number of US merchants. For instance, when discounter Overstock.com trialled a promotion reducing its delivery fee from $2.95 to $1, more people ordered big-ticket items such as beds and bookcases, even though their actual savings was less than $2. And a report released last year by US web analytics firm ForeSee Results found that offering either free standard delivery or free delivery for orders over a specified monetary threshold is effective in attracting "first-time customers who may otherwise have bought from the competition". 

Here in the UK, "free unconditional delivery is quite rare," said Sarah Clelland, marketing manager at ecommerce technology and consultancy firm Snow Valley. "Our research shows that 14 of 123 UK online retailers offered free unconditional delivery as standard in July and August 2008-just 11 percent."

One reason for some retailers' reluctance to opt for free shipping, despite its effectiveness, is the toll it takes on profits. What's free for the customer can be very costly for the marketer. A source at a retailer that ran a free delivery promotion throughout October admitted that the offer was chomping into its margins and generated a higher returns rate. Without the barrier of a delivery charge, said the source, who spoke to Catalogue/e-business on condition of anonymity, customers "order on a whim", only to change their minds about their impulse buys.

Nonetheless, as the run-up to Christmas intensifies, more and more retailers will test delivery promotions. "Next, Lands' End, Figleaves, Blackwells-all offered unconditional free delivery at some point in the run-up to Christmas 2007," Clelland said. "So far this year, Amazon has reduced its free Super Saver Delivery [now available on orders of as little as £5, compared with the previous threshold of £15]; M&S is offering free unconditional delivery; Fat Face, LK Bennett and House of Fraser have run unconditional free delivery promotions."

What this means to you: With consumers more budget-conscious than ever, offering free postage can give your company an edge over the competition-and if your competition is already offering free delivery, you may need to do so to stay in the game.

But because indiscriminate free shipping can cost your company big-time, you need to put a lot of thought into how you structure the promotion. "It amazes me that more retailers don't experiment with delivery, as there are loads of ways of approaching it," said Clelland.

If encouraging early orders-to bolster your cash flow and help smooth out your seasonal peak-is a priority, consider offering free shipping for a limited time only. If you want to increase basket sizes, establish a monetary threshold for free delivery that's slightly higher than that of your average order value. If you want to win over last-minute shoppers, offer a free upgrade for express delivery as the cut-off date for Christmas orders approaches.

Above all, don't rely too heavily on free shipping, warned Larry Freed, ForeSee Research's president and chief executive. "Despite its importance, free shipping is not the silver bullet that will turn holiday shoppers into loyal, repeat customers... Our research shows that there really is no single solution that will guarantee both a successful holiday season and long-term satisfaction and loyalty. Rather, each e-retailer must find out what's most important to its customers and deliver an online experience that meets their needs."-Miri Thomas

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