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Why Free Shipping Works

There has been alot written on Practical eCommerce and elsewhere regarding free shipping and whether or not it makes sense for merchants to offer. I’d like to share my experience with it and tell you why it makes sense for eHobbies.

For years, we rarely offered free shipping promotions at all for any size of order. When we did, it was done in conjunction with a limited time offer set at a threshold of $75 or higher. While we had some success with this model, we did not promote it outside of our newsletters.

However, when many of our competitors began offering ongoing free or flat rate shipping promotions we knew we had to offer something similar to our customers. Our shipping rates were historically structured in a weight based model that was the same price regardless of the destination. So if we were shipping something down the street in zone 1 or across the country in zone 8, our customers paid the same price. This allowed us to have a higher margin for shipping to closer zones however we wanted to achieve a scenario that would enable our customers in zones 1-7 to pay lower shipping costs. The obvious negative result of this was high cart abandonment in the closer zones because the shipping costs were too high.

Early last year, we developed and implemented new shipping rules that was a game changer for us. We were able to plug into UPS & FedEx APIs (application programming interface) which allowed us to get our real time rates and delivery estimates with the carriers. In addition and this was big for us as well, we decided to offer first class mail, priority mail and parcel post shipping options from the postal service. We carry many small and lightweight products such as RC car parts and pinewood derby kits. These low priced products are perfect candidates for first class mail. In addition other products like rocket starter sets and rocket motors can only be shipped via parcel post. While we passed along significant savings to our customers with these new shipping options, we were also able to increase our profits from shipping and fund promotions to drive more business.

After collecting data that supported our initial findings on shipping profits, we decided to run an ongoing promotion offering free shipping with most purchases over $99. While we launched this offer on a limited basis we have continued to run it since late last year and we will continue to monitor it and test other thresholds. The effect of free shipping (funded by offering other profitable shipping options to offset) has powered our January growth to double digit increases over last year in both sales and average order size. If we didn’t have a vehicle to help us fund free shipping, it would be difficult to support a case to offer this promotion in a big way. The reason it works for us is because we were able to find a method to support its existence.

Ken Kikkawa
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