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Smarter Strategies for Free Shipping

At this week’s Internet Retailer Conference, UPS is hosting a Technology Theater on one of the hottest topics our retail customers are talking about: free shipping. Sucharita Mulpuru, one of the retail industry’s leading research analysts in eCommerce, will provide key insights on when and how to best execute profitable shipping promotions. 

Free shipping is widely used by e-retailers and can be effective as a marketing and promotional tool to increase sales. According to a recent study by the National Retail Federation, consumers’ number one purchase incentive is free shipping and it’s a motivating factor in where they shop. UPS customer L.L. Bean recently made headlines when it dropped most of its shipping fees for orders in the U.S. and Canada. The outdoor clothing and catalog retailer joins Zappos in offering no-strings-attached free shipping both ways.

Internet Retailer ConferenceWith a steady increase of online sales, consumers often expect free and low-cost shipping options from retailers. According to comScore, nearly half of online orders in the first quarter of this year were delivered free of charge, and ¾ of consumers said they abandon retailers at checkout if the shipping isn’t free.

Creating a free or promotional shipping strategy can be beneficial, but how can you determine what approach is right? There are many predictable and some unpredictable costs associated with shipping promotions. The answer lies in your company’s logistics strategy, which is the foundation for creating competitive advantages with your shipping.

In a recent study commissioned by UPS, Forrester Research interviewed 13 Web retailers of varying sizes about their experiences with free shipping offers. Forrester’s study “Smarter Strategies on Free Shipping,” found strong evidence that free shipping attracts new customers and helps to improve customer loyalty. Customers are also less likely to abandon their shopping carts and buy more.

For those e-retailers that don’t think free shipping is a viable option, the report offers a few strategies to remain competitive:

Flat rate shipping: Retailers reported this is an extremely effective strategy. Companies send those orders UPS ground to keep costs under control.   

Logistics: At UPS we know logistics matters. Retailers with multiple or centrally-located distribution centers say shipping promotions are able to drive incremental sales while minimizing the impact to their bottom line.

Shipping Promotions on Key Items: By offering free shipping only on key items that meet a certain margin, retailers can mitigate some of the expenses associated with free shipping. This type of promotion can be an effective way to incent some incremental purchases.    

VIP Shipping Programs: Offer customers the option of paying a one-time fee in order to receive free services.

Forrester researchers also discovered free shipping is not a “one size fits all” business strategy and the success of shipping promotions depends on a variety of factors including product value, supply chain design and current market conditions. Shipping promotions can become costly if it negatively impacts the customer experience or additional IT services are required to support the promotion. Small business owners know consumers would buy more if they offer free shipping; however, many cannot afford to absorb all of the cost.

The theme for this year’s IR conference, the world’s largest eCommerce show is “eCommerce Shifts into Overdrive,” and UPS will be driving the business of online retailers into the fast lane with shipping strategies that work.

Category: Helpful Tips and Ideas, Logistics
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    Comments [1]

  1. Thanks for sharing! It is good to know that what we
    read in the research paper is real at UPS. What you
    wrote today explains how could UPS become a Co-
    creative and user innovative frim as explanined by
    Chesbrough (2003) and the thinking of Prahalad and
    Ramaswamy (2004 a).Chesbrough stated that UPS is
    more of open innovative and co creative since
    customers at UPS are also co innovator of the process.
    It is great to hear that UPS is using intensive
    engagement platform that transform the consumer
    ideas into reality. I believe that UPS will continue to
    access the majority customers only when UPS
    continues building its innovative platforms like this. I do
    also believe that the internet interface as means to get
    customers involvement or the application artifacts,
    interfaces, dialogue with people or processes at UPS
    will strengthen the capacities of UPS to be a market
    leader. Thanks again.

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