The Pros and Cons of E-commerce Businesses Offering Free Shipping

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As the world continues to recover from the effect of the COVID-19 pandemic, increased numbers of consumers are turning to e-commerce businesses.

With more of us turning to online shopping, convenience is critical when it comes to providing a top-quality customer experience. As a result, ensuring that your business’s order fulfilment process is timely and accurate has never been more crucial.

Additionally, many large online stores now offer options for free shipping in a bid to provide this desired efficiency. The quest for ultimate customer convenience, creates a dilemma for small to medium-sized businesses, wondering if they should also get in on the free shipping trend.

There are both business advantages and disadvantages for businesses that offer free shipping, some of which we will discuss below.

Advantages of free shipping

There are several benefits to businesses that choose to offer free shipping to their customers. Some of these are as follows:

Customer experience

Let’s face it; every customer who sees that an online store offers free shipping is going to be very satisfied with this. Many large businesses have recognised this phenomenon and, as a result, customers now often expect to receive free shipping when shopping online.

Our love of free shipping also means that customers are more likely to engage in repeat business with a company that provides this offer.

There are many pain points for consumers when it comes to online shopping, particularly when it comes to deliveries. These concerns mainly centre around the cost of shipping and delivery times. If your business can take away some of that stress by providing free shipping, customers will be delighted and are likely to return.

Competitor advantage

Whilst free shipping is not appropriate for every business; if your competitors are offering it, you probably should too. If your business is one of the few within your industry that does not offer free shipping as an option, you are likely to fall behind.

What is the incentive for customers to place business with your company if your competitor has a better offer?

On the other hand, if none of your competitors offers free shipping, this could be a great way to set yourself apart from the competition and develop a following of loyal customers.

Reduce cart abandonment

We’ve all been there when we’ve selected an item online, go to the checkout only to discover the cost is much greater than what we initially anticipated.

Shipping costs that are not made clear beforehand and then suddenly dropped onto the customer during the checkout stage can be a nasty surprise.

For lower cost items, it can often leave customers wondering if the purchase is even worth it at that stage.

Offering free shipping often takes away the guilt some customers can feel when in the process of making a purchase and makes them feel like they’re getting a good deal.

Disadvantages of free shipping

Whilst there are many benefits to e-commerce businesses offering free shipping, it certainly isn’t the right option for everyone. Some of the disadvantages of free shipping are as follows:

Impact on profit margins

Offering free shipping may not be cost-effective for some e-commerce businesses. To recover the costs of providing free shipping, you must ensure that you have sufficient capital, increase the value of your products or see a more significant number of customer orders.

Although free shipping can attract customers, ultimately if you are unable to make a profit from this offer, it can quickly lead to the downfall of the business.

Increased product prices

Smaller to medium-sized e-commerce businesses that choose to offer free shipping may find themselves needing to increase product prices to recover costs.

Increasing prices can be a risky move when attempting to compete with larger companies. Big e-commerce brands that receive large numbers of customer orders every day will likely not need to ramp up product prices to make free shipping cost-effective.

Small businesses, however, take on the risk of making a loss to compete on price, or ask for a higher price and potentially lose out on sales.

If customers become aware that your product costs have significantly increased, this can be off-putting, and they will most likely head over to your larger competitor.

Increased returns

Free shipping and returns take away the guilt and hassle away from the buying process. Therefore, when an e-commerce business offers free shipping, customers are more likely to purchase an item that they don’t necessarily need, purely to try out or take a look.

As a result, many businesses see an increase in impulse orders where the intention is to return it at a later date. These impulse orders can leave your company with having to cover the cost of both shipping and returns and no longer becomes cost-effective.

Your business must consider all these factors when assessing if offering free shipping is right for you.

In addition to free shipping, many small to medium-sized businesses are choosing to outsource their order fulfilment to a 3PL (third-party logistics) provider to ensure that the process is as efficient as possible.

If you feel your business’s order fulfilment process could benefit from the services of a 3PL provider, please get in touch with Pointbid on 0121 326 7368.

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