Finding a Balance Between Free Shipping and Discounts

Experienced retailers understand that shoppers have grown used to free shipping and discounts, but offering both at the same time depletes margins and brand value. There has to be a delicate balance between the two and it’s often hard to know which one will have the biggest impact without testing it out. Many retailers have a “one offer code or coupon valid at a time” policy and this is a good start in terms of preserving margins and having a clear-cut answer as to what shoppers prefer.  

Free Shipping and Discounts During the Holidays 

A recent study of 3,000 US consumers by Kibo set out to learn what shoppers are planning this holiday season and how retailers can align their strategy to match up perfectly. What they initially found shows us why the choice between free shipping and discounts is often so difficult. In their study, Kibo found that “70% of shoppers expect free shipping for standard delivery during the holidays” and “70% of shoppers indicated relevant discounts make them more likely to visit/shop a website.” But do shoppers really like free shipping and discounts equally? I’d argue that they don’t and the proof can be found in semantics, as shoppers “expect” discounts versus being “more likely” to shop when they were presented with relevant discounts.  

Despite this, there is a strong case for putting free shipping and discount offers to the test, especially during the holiday season when stakes are even higher than usual. Target, for instance, is running a free shipping promotion that started on November 1st and will run through the entire holiday shopping season. The wild part about it is that there are no minimums. While this is often a slippery slope, as the retailer could quickly rack up shipping costs on orders well below their average order value, this is still an intelligent move to remove barriers to purchase this holiday season and encourage shoppers to check out again before the promotion runs out.  

An image of a delivery man delivery packages.

On the other side are Walmart and Amazon. These two retailers have had oscillating free shipping minimums to stay competitive with one another. Amazon’s free shipping minimum had been $35, then they upped it to $49. However, Walmart, newly scrappy from their Jet acquisition, lowered their minimum from $50 to $35. Not to be outdone, Amazon matched that. And in mid 2017, they lowered it even further to $25. A whirlwind of prices indeed, but it goes to show that free shipping matters a lot, even when behemoths are in question. Major retailers need to keep up with this trend in order to keep sales up during the holiday season and beyond. After all, it is now a consumer expectation.  

The Impact of Free Shipping and Discounts on Cart Abandonment 

This is the most wonderful time of the year… for cart abandonment. Shoppers are in a flurry, trying to get something for everyone and with every major news outlet reporting that this holiday season online shopping will outpace in-store for the first time, there’s a lot on the line. Getting shoppers to your website, informing them adequately about product features, and having a price enticing enough to put into their carts is already a feat. But getting them to submit their order is the final frontier.  

You’ve put in the work to get shoppers to add items to their cart, but what about when something distracts them or they decide to check a competitors’ site first? That potential sale shouldn’t just enter the “sale that could have been” graveyard to collect cobwebs. Instead, it’s time to spring to action with the help of free shipping and discounts.  

An image of a cobweb with raindrops on it.

Kibo’s report states that of the retailers surveyed, 57 percent sent cart abandonment emails to try to get shoppers back. What is astounding is that none of those emails included an offer of free shipping, a discount, or any other incentive, for that matter, to pull the shoppers back to their site. The worst part? If they had, shoppers more than likely would have completed the purchase. While it’s important to remember that there is always the potential for a disconnect between what consumers say they will do and what they actually do, 71 percent stated they would have gone back to finish their purchase if offered a discount. And an offer of free shipping was a close second at 69 percent.  

This, of course, puts retailers between a rock and a hard place. The preference is to have shoppers check out at full price, as they had initially intended to, but is it worth it to offer up a discount to complete the sale? This is a question to ponder and retailers could try it out by offering a small discount or a free shipping offer just over the order value of the items in the cart. Raising the basket size could make it worthwhile, so testing it out may be a good move.  

How Free Shipping and Discounts Set You up for Holiday Success 

In the Kibo study, consumers were a bit more decisive about what would encourage them to shop with certain retailers this holiday season. A full 88 percent cited free shipping, while 74 percent opted for discounts and promotions. If you’re at a standstill about which offer you should give priority to, competitive benchmarking could be the tie breaker. Automate the process of going through competitors’ promotional offers on their homepages, in their emails, and on social media. This will give you a historical view of what has worked well for them in the past and what could be up their sleeve in the future.  

An image of a smartphone showing social media network apps.

Mapp Digital surveyed adult consumers in a report released earlier this year to gain an understanding of their purchasing behavior. What they found got much more nuanced than other studies. They found that among consumers 18-34 years old, the preference in marketing emails from companies was to get percentage-off offers. For those 35-54 years old, they were slightly more likely to want dollar-off deals. And when it came to shoppers 55-64 years old, free shipping was what they preferred. From this study, it’s clear that the right balance between free shipping and discounts largely has to do with the demographics of your target market.  

Closing Thoughts 

Studies are only so useful when going from theory to practice. Ultimately, with all the data you gather, running a test and determining whether free shipping or discounts lead to more conversions will be the only way to find a real (and personalized) answer.  

As retail becomes even more competitive, will free shipping become required? Radial found that within the Top 50 retailers, 16% include free shipping on all orders. While this may seem small, if the studies we have discussed here are any indication, we’ll see that number steadily rise as eCommerce continues its impressive growth.  

 Need better data to inform your decisions? Whether in-store or online, Wiser has you covered from pricing to assortment to promotions. Schedule a meeting today to learn how to turn retail data into action.

Angelica Valentine

Angelica Valentine is the Marketing Manager at Wiser, the leading provider of actionable data for better decision, and a contributor to VentureBeat, Business Insider, The Future Customer Engagement and Commerce, and more. She holds a BA from Barnard College of Columbia University.