Free shipping promotions are all the rage right now! Who doesn’t like a freebie, right?
Many online retailers offer free shipping as a way to attract customers to purchase and bring home those big bucks — but what if free shipping and refunds actually led to poorer profitability?
Selling products online that people want to try before they buy can be a risky business as revenue gains are outweighed by increased costs associated with returns (shipping and product waste).
So are online retailers doomed? Of course not! Thankfully, there are a number of ways to drive sales without hurting your profits.
What Can I Do?
Think Outside the Returns Box
Tactics such as online chat, product page videos or user recommendations can be effective in addressing customer questions and concerns, which reduces the likelihood of a customer wanting to return their products.
Offer Promos That Impact the Bottom Line
The research suggests that while alternative promotions, such as a coupon or discount, may not be as effective in increasing sales, they are more profitable as they do not result in increased returns.
Look at the Metrics That Matter Most to You
Other research shows that while a free shipping and returns promotion does increase returns, it isn’t all bad. By providing customers with a great experience, they’ll feel more comfortable returning their items and also feel comfortable buying more items, therefore increasing their loyalty and lifetime value, which increases profitability in the long run.
What’s Going On Here?
Products that are hard to assess online (e.g. clothing) are the ones everyone wants to try before they buy. This is because customers feel there’s more risk and uncertainty in purchasing, so free shipping and returns can help de-risk the purchase. While this may increase returns and hurt immediate profitability due to the costs associated with returns, it may also create a more loyal customer base.
Source: Shehu E, Papies D, Neslin SA. Free Shipping Promotions and Product Returns. Journal of Marketing Research. 2020;57(4):640-658