Budget-conscious online shoppers are being more selective about spending as costs continue to rise and consumers feel the pinch to their wallets. Online merchants, of course, are paying close attention to consumers’ changing buying habits. As they do, one important thing to consider is how add-on costs (such as shipping) could hurt their sales. After all, if consumers are finding it harder to justify purchases in general, seeing $12.99 in shipping fees added on at checkout could certainly be a deal breaker. More than ever, e-commerce merchants must find ways to keep shipping costs to a minimum if they want to prevent abandoned shopping carts and lost sales.
Buying behaviors are shifting
Consumers’ buying habits are finally shifting in response to rising costs driven by the pandemic, supply chain shortages, the war in Ukraine, and other factors. Until recently, consumer spending remained relatively normal month after month, even as inflation ticked upward. Now, behaviors are changing, and consumers are consciously cutting back in noticeable ways.
A 2022 Q1 consumer spending report found that 72% of consumers admit rising inflation has affected their spending on consumer goods. Also, 70% of consumers are making fewer “fun” or impulse purchases. The New York Times recently reported that shoppers are buying smaller quantities of staple items, switching to store brands, and replacing high-end items with less expensive alternatives. As shoppers become more deliberate about their purchases and opt for lower-cost options, they’re likely to be more sensitive to added costs — for online shoppers, that includes shipping fees.
E-tailers know that online shoppers have always disliked paying for shipping. Consumers regularly comparison shop and look for ways around paying for shipping — often choosing more expensive items or adding more to their cart in order to meet free shipping thresholds and reduce their total shipping amount. Now that consumers are spending more conservatively, they may be even less willing than before to make purchases from merchants that charge shipping fees. As a result, e-commerce sellers face a difficult question: Is it worthwhile to offer free shipping to try to win more customers and drive sales?
E-commerce faces a dilemma
Labor shortages, rising fuel costs, and increased demand have driven up the cost of shipping. As a result, e-commerce businesses are being hit with delivery surcharges and shipping rate hikes. Attempting to absorb these extra costs significantly cuts into business’ profits. If margins are tight, offering free shipping is neither profitable nor sustainable.
And yet, there’s no denying that free shipping is in high demand. By their own admission, 80% of consumers expect free shipping when purchasing a certain dollar amount, and 66% expect free shipping on every purchase.
Deciding whether or not the benefits of subsidized shipping outweigh the drawbacks can feel like a guessing game for merchants. Before offering free shipping, it is important to weigh the pros and cons. The next step for merchants is to experiment via A/B testing and learn more about what drives their shoppers to click the buy button.
Running A/B tests for free shipping is relatively simple. One option is to turn on free shipping for a week, turn it off the next, and compare the impact on site visitors, cart abandonment rates, gross margins, and more. The same insights can be captured by alternating free and paid shipping every other day for a two-week period. Both strategies will provide insights about how motivating free shipping offers are to customers, and whether subsidizing shipping makes sense.
Merchants have options beyond free shipping
While free shipping is always going to be attractive to online shoppers, it’s not the only appealing offer. Businesses can reduce the cost of shipping by delivering to commercial locations. Commercial delivery is considerably less expensive than residential shipping. By giving online shoppers an option at checkout to ship to a local commercial pickup point—such as a pharmacy, grocery store or convenience store — e-commerce businesses can reduce shipping fees and help customers save money.
During the pandemic, consumers demonstrated that they are willing to use in-store pickup and curbside services — even if it meant going out to pick up purchases. Now, consumers are particularly motivated to pick up their orders if it allows them to avoid high shipping costs. Via.Delivery conducted an analysis of thousands of e-commerce transactions and found that when shoppers were given the option at checkout, nearly one in five chose delivery to a commercial shipping location. Half of those shoppers said they opted for commercial vs. residential shipping to save money.
Consumers may be cutting back on spending, but that doesn’t mean they won’t continue to shop online. If online merchants pay attention to consumer trends and respond to meet shoppers’ expectations for affordable shipping options, they will have a better chance of earning customers and sales. Rather than feeling pressured to offer free shipping deals that aren’t profitable for their business, e-commerce brands may want to consider giving customers an option to save on shipping by selecting delivery to a commercial pickup location. The cheaper commercial shipping rates are a win for both consumers and online businesses.