When it comes to online retail, pricing strategies can make or break a business’s success. Among these strategies, two stand out as particularly effective tools for driving conversions: discounts and free shipping.
Discounts have been a traditional marketing tactic for as long as commerce itself has existed. The psychological allure of getting a product for less than its original price is undeniably effective, enticing customers to purchase more. Discounts can also be a powerful tool for clearing out inventory and attracting new customers.
On the other hand, free shipping has emerged as a potent marketing strategy in the era of eCommerce. The appeal of not having to pay extra for delivery cuts across all demographics and product categories. Indeed, for many online shoppers, the prospect of free shipping is often the deciding factor in completing a purchase.
Both strategies have proven their mettle in attracting customers and boosting sales, but the question remains, which one works better for conversions?
Understanding the Effectiveness of Both Strategies on Conversions
While both strategies can be appealing to customers, it’s critical for businesses to understand which of these offers brings the most significant conversion rates and, ultimately, a better return on investment.
Discounts
Discounts exert a considerable influence on customer behavior and can significantly improve conversion rates. According to Capital One Shopping Research, 91 percent of Americans check for discounts before making a purchase online, and 35 percent of shoppers buy more than they normally would when a discount is available.
This statistic underscores the compelling incentive that discounts present to potential buyers, helping to tip the balance in favor of a purchase decision.
Moreover, 64 percent of respondents say discounts speed up their decision to make a purchase. This highlights the impact of online discounts on the purchase timeline, potentially accelerating the conversion process and facilitating the rapid turnover of inventory.
Yet, it’s also important to recognize that while discounts can be a powerful tool, they should be used strategically. Excessive or frequent discounting might lead to a devaluation of your products or services, as customers might start to question the quality.
While both strategies can be appealing to customers, it’s critical for businesses to understand which of these offers brings the most significant conversion rates and, ultimately, a better return on investment.
Free Shipping
The influence of free shipping on eCommerce conversions is profound. A study done by Shippo found that only 3 percent of consumers reported that they don’t care about shipping costs while 42 percent said they would join a loyalty or membership program in exchange for free shipping. On top of this, 47 percent said they would meet a minimum payment to qualify for free shipping.
These statistics highlight the potential loss retailers could face without such a policy in place. Various studies indicate that unexpected shipping fees are the top reason for cart abandonment, suggesting that free shipping could be a powerful tool to increase conversions. Online retailers must therefore carefully consider the potential upside in conversions and customer satisfaction that free shipping might provide against the cost benefit and any associated costs.
However, it’s important to acknowledge that while free shipping can be a significant conversion driver, it needs to be implemented strategically, considering various factors such as the shipping cost, average order value, and overall profitability.
Factors That Can Influence the Effectiveness of Each Strategy
When comparing the effectiveness of discounts versus free shipping in increasing conversions, several factors come into play, such as:
Perceived Value
The perceived value of the offer is a significant driver. Customers are more likely to convert if they believe they are receiving significant savings via a discount or free shipping.
Timing
The timing of the offer also plays a crucial role. Offering discounts or free shipping during peak shopping periods or holidays can lead to higher conversion rates.
Shopper Preferences
The target audience’s shopping habits and preferences can affect the success of such offers. Some customers may be more motivated by discounts on the products they want, while others may prefer free shipping. Staying on top of consumer behavior is vital.
Minimum Requirements
The conditions attached to these offers can also impact their effectiveness. For instance, a high minimum spending requirement for free shipping might deter some customers. Understanding these factors can help retailers strategically design their discount and free shipping offers for maximum conversion.
How to Determine Which Strategy is Right For Your Business
Understanding the impact of discounts and free shipping on retail conversions requires careful cost benefit analysis of your customer preferences, purchasing behavior, and the nature of your products. While both strategies have proven effective in increasing conversions, the success rate can vary significantly depending on the specific circumstances of your business.
Discounts can be a powerful tool to drive conversions, particularly for price-sensitive customers or during peak shopping seasons. They can help clear out inventory, attract new customers, and incentivize larger purchases. However, the key is to ensure the discount does not significantly erode your profit margins. Regularly using flash sales or offering heavy discounts can also condition customers to wait for these sales periods, potentially harming regular sales.
On the other hand, free shipping is a significant motivator for online purchases, especially for customers who are deciding between an online store and brick-and-mortar retailers. It eliminates an additional cost that customers often perceive as an unnecessary expenditure. Yet, it’s important to consider the financial implications that come along when you offer free shipping. If your products have a low profit margin or are heavy and costly to ship, offering free shipping to online shoppers might not be the right move.
Sometimes, these strategies can be even more effective when used in conjunction, providing both perceived value and convenience. While the effectiveness of each can depend on factors such as the target audience and product category, both discounts and free shipping have clear benefits in driving conversions.
It’s not about choosing one or the other, it’s about using both strategically to boost your bottom line and increase your average order value. Don’t rely on discounted prices or free shipping to win the customer over, adopt a dynamic pricing strategy to make sure you’re staying ahead of the competition. By combining discounts and free shipping with your dynamic pricing strategy, you can boost your conversions sky high.
Visit Wiser.com today to learn more about how you can optimize your pricing strategies.
Editor’s Note: Contributing writers are Min-Jee Hwang and Brian Smyth. This post was originally published in January 2015 and has since been updated and refreshed for readability and accuracy.
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