Forrester: Free Shipping Considered a ‘Necessary Evil’

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Research into free shipping trends revealed while retailers acknowledge the benefits of this tactic, it is viewed as a ‘necessary evil’ of e-commerce practice.

It seems that even our neighbours in the US are struggling with the ongoing conundrum of offering free shipping.

A Forrester report, commissioned by UPS, ’Smarter Strategies For Free Shipping’, revealed that though free shipping provides value, retailers are reluctant to employ this tactic for a variety of reasons.

Reported by Multichannel Merchant, the key findings from the report included:

• Retailers find value from free shipping, but view it to be a ‘necessary evil’ of e-commerce. Several retailers specifically said they offered free shipping to ‘stay competitive’, but  tried to avoid offering it whenever possible because it eroded their already thin margins, only offering this option during key shopping periods (e.g.  seasonal holidays, etc).
• Free shipping sometimes results in unexpected costs beyond subsidising the shipment. Retailers identified that free shipping also increased labor and customer service costs associated with free shipping order ‘spikes’, and greater IT costs when these offers incorporated exclusions or product restrictions.
• Product category and distribution centre location was the biggest driver of the ‘effectiveness’ of free shipping. Retailers with the best ‘free shipping’ results were those who had generous margins on their products, products that were easy to fulfill and strategically placed distribution centers, allowing them to offer free shipping more frequently because they were able to take advantage of lower shipping rates. This clearly makes a difference to retailers such as Zappos, that have strategically located its distribution centre next to the UPS central hub in the US and are now renowned for a generous free delivery  and returns policy.
• Many retailers seek out ‘creative’ ways to offering free shipping. Retailers search for ways in which to drive sales without losing margin, utilising tactics such as premium shipping clubs, flat-rate shipping, and offsetting shipping costs by incorporating the charge into the cost of the products.”
• The P&L responsibility for ‘free shipping’ can significantly impact how frequently retailers offer it. Retailers who identify free shipping as a marketing expense, tend to offer free shipping more frequently, and generally did not downgrade shipping service levels to save money.

Article by Nirosha Methananda

Nirosha is a content creator for The Media Pad, publisher of Power Retail. Coming from a marketing and communications background (in the legal, retail and online industries), Nirosha is excited to be able to put her knowledge and experience to work for Power Retail. Recently engaged, Nirosha is immersing herself in the joys of wedding planning! She is also an avid reader (of mostly fiction), always keen to get onto the golf course, likes to paint, tries to sing and is able to recall useless celebrity facts at the drop of a hat!