What’s Better for Conversions: Discounts or Free Shipping?

As an online retailer, you want to accomplish two main things: You want to make money, and you want to make your customers happy. Of course, there are other minor aspects to how you run your business, but ultimately those are probably your main two goals. So how do you do it all? Well, there are two ways where you kill two birds with one stone: online discounts, and free shipping.

You’re a consumer as much as a business owner, so you know why these can make customers happy. You’re saving them money, and you’re adding value to their orders. Unfortunately, using both is ultimately going to cost you a lot of money. Let’s break down both of them to discover which is going to improve your conversion rates the most.

Discounts are Hip

According to research done by Flagship Research for BlueHornet, Approximately 34.1 percent of respondents aged 25-34 preferred online discounts over free shipping, making them the largest demographic to favor online discounts. Conversely, only 18.5 percent of that age group preferred free shipping over online discounts, making them the smallest group to prefer free shipping.

If you are trying to attract millennials, online discounts might be the way to go. It should also be noted that millennials have $600 billion in purchasing power, making them the demographic with the most spending power ever. You can also create a sense of urgency with discounts and flash sales. They can move your inventory and you’ll be building loyalty with your customers.

Free Shipping Preserves Trust

Interestingly enough, consumers aged 46-75 want free shipping the most. Consumers aged 56-65 make up the biggest group who favor free shipping at 35.5 percent. Countering their younger counterparts, this demographic cares about online discounts the least. But who doesn’t like free shipping? Approximately 81 percent of customers prefer free shipping when checking out, but you have a business to run, and accumulating shipping costs can hurt your profits.

At 69 percent, baby boomers are the largest group of consumers whose digital shopping pet peeve is paying for shipping. So if your target market is a middle-aged, mature audience, you should be thinking more about free shipping than online discounts. Free shipping can also reduce cart abandonment. About 58 percent of consumers say it made the cost of the product more than they originally thought.

Use Discounts to Save a Customer

Let’s say you’ve taken the discount route. How do you use it without breaking the bank? Well for one, you can put it towards an area that needs more attention, like mobile. Mobile cart abandonment hovers around 97 percent, and you know who loves mobile? Good old generation Y. Offering discount codes at checkout only for mobile devices can increase your mobile conversions and cut back on cart abandonment greatly.

Another way to introduce discounts is through flash sales and returning coupons. Send emails out promoting 24-hour sales, create a sense of urgency that will bring people to your store. Build loyalty with coupons. Provide a coupon that is valid two weeks after the customer’s initial purchase. It will bring millennials back to your store and build loyalty

Free Shipping isn’t Limited to the Internet

Like discounts, you can use free shipping to attract customers to your store. Offer free shipping for a shopper’s first online order, drawing them away from competitors and giving you an extra sale. From there, you can establish minimum order value for free shipping. About 58 percent of customers will add items to their carts to qualify for free shipping. The extra order value should offset shipping costs, and customers will remember that your store offers free shipping for great products.

Another way you can help the customer save money on shipping is by taking a more omnichannel approach. If you have a physical store, suggest BOPIS, or buy online pickup in store. The customer will enjoy the convenience of shopping online, with the lack of shipping costs and wait time. While they’re in the store, 43% of customers will buy another item, so use the opportunity to upsell.

Can You Actually Get the Best of Both Worlds?

If you started this article hoping for a clear cut answer to which is better, I’m sorry. 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. The customer’s belief in saving money can result in them purchasing more, and as a result, hitting their minimum order value to qualify for free shipping. A study of 113 major retailers found that free shipping minimums have increased by $76 in the past year.

This increase offsets costs and shows that people will buy more to qualify for free shipping. How you implement both depends on your own preferences, but keep these facts in mind:

• Millennials have $600 billion in spending power
• Millennials love shopping online and on mobile
• Free shipping is technically a discount
• BOPIS gives you an easy opportunity to upsell

No matter how you implement these strategies, there is one factor to keep in mind: price. With 84 percent of customers citing price as the largest influencer of purchase, you have to make sure the price is right. Don’t rely on discounts 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.

Editor’s Note: Contributing writer is Brian Smyth. This post was originally published in January 2015 and has since been updated and refreshed for readability and accuracy.