Free shipping and Online shopping

Interesting article on the effect of “free shipping” offers on online shopping behaviour

How the Offer of ‘Free Shipping’ Affects On-line Shopping
  The phrase “free shipping” is like a siren song to many who shop on the Internet.

For whatever reason, a free shipping offer that saves a customer $6.99 is more appealing to many than a discount that cuts the purchase price by $10, says Wharton marketing professor David Bell. Bell noticed this phenomenon a few years ago while doing research for an online grocery store, and the observation prompted him to look more closely at the ways Internet retailers use shipping charges — or the lack thereof — as a promotional tool.

….Consumers like free shipping offers, perhaps because it makes the online retail transaction more comparable with that at the neighborhood store. Whatever the reason, it’s clear that consumer behavior changes when shipping fees are imposed. With fees, shoppers will make fewer shopping trips and purchase more goods at a time — not unlike shoppers who drive great distances to a particular store, Bell says, and decide they had better stock up while they’re there. Alternately, fees can prompt consumers to simply walk away. A survey from 2004 found that shipping and handling costs triggered 52% of the abandonment of online shopping carts, Bell says.

Setting Thresholds — and Prices
…Bell gives an example of a firm that lowers its free-shipping threshold to induce customers to purchase smaller quantities with greater frequency. If the company’s goal is to leave consumers equally well off in terms of their long run costs, should the threshold change be accompanied by price increases or decreases? Bell’s model shows that the answer depends on where the firm’s prices currently stand.

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Posted on April 21, 2006, in Uncategorized. Bookmark the permalink. 2 Comments.

  1. Consumers like free shipping offers, perhaps because it makes the online retail transaction more comparable with that at the neighborhood store.
    Yep, this nails it…Once the shipping cost is out of the way and levels the deal in a psychological sense, I guess people just see if the price is “reasonable”, not whether it is more than their local Barnes & Noble.

    Unless, of course, you’re Indian. In which case, you *have to* pay the lowest price on earth for it. You will look high, you will look low until the squirm of margins being squeezed out of the dealer shows. It’s that simple. We are like this only.

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