Retail Holidays: Free Shipping Analysis & Optimization
Free shipping during the Holidays has evolved over the past several years to where it is now table stakes for remaining competitive; an expectation from consumers all around the country. It is a concept that can take a retailer’s online sales to new heights, but can also make them cringe. After all, somebody has to absorb those shipping costs, and our friends at UPS and FedEx aren’t being that generous! This blog post focuses on creative ways to use SiteCatalyst to understand and optimize the impact free shipping can have on your business.
Two of most common forms of free shipping, which we will focus on today, are order-level (i.e. free shipping on orders over $75) and site-wide (i.e. free shipping on everything, no restrictions). We’ll also review how SiteCatalyst can help inform product/category-level free shipping (i.e. free shipping on iPods). It is important to note that in the absence of a testing tool, it is imperative to do pre/post free shipping comparisons during date ranges where promotional cycles are similar, or at least be cognizant of the promotions running during your comparison timeframes. For example, if during your pre-timeframe your website is offering 10% off all TVs and during your free shipping timeframe you offer 25% off all TVs, the difference in promotions will dilute the true impact of the free shipping.
Example #1: Order-Level Free Shipping
One way to evaluate the effectiveness of free shipping is to simply monitor your website’s commerce metrics. In the example below, we see that when free shipping was offered, there was an uptick in both AOV and conversion rate. Visits increased too, but to simplify this example we don’t want to take credit for that increase. As a result, I strongly recommend using RPV (Revenue Per Visit) to normalize the traffic.
From the data above, you can quickly estimate the revenue lift from your free shipping promotion. First, calculate the revenue that would have been generated during the latter 7 days in the absence of free shipping (RPV during first 7 days x Visits during later 7 days) and subtract the total from the recorded revenue generated during the free shipping promotion to derive revenue lift. From there you could do even more due diligence by calculating the shipping cost to the company (Shipping Costs Per Order x Orders) and subtract further to calculate a net lift. Please note the example does not factor in impacts to profit margin, so it would be best to partner with Finance to paint the full picture from a P&L standpoint.
Example #2: Site-Wide Free Shipping
Customers love site-wide free shipping; no minimums, no fine print. However, the reality is that some of your products and product categories will likely sell regardless of your shipping promotions (such as high-demand low-supply products, which during the Holidays include things like Wii U, the new iPad, etc). Consider the example below where site-wide free shipping is offered in the period. After the promotion launches, we see an uptick in the mix of website orders from the Home and Media categories. Businesses can use these insights to inform future free shipping promotions by focusing on specific products/categories that over-perform during your site-wide free shipping promotions, and conversely save your company money by not offering free shipping on the products/categories that sell well regardless. You can also use a testing/targeting tool to offer free shipping to specific segments, such as new visitors/customers.
7 Days Pre Site-Wide Free Shipping
7 Days Post Site-Wide Free Shipping
Example #3: Store Pickup
For multi-channel retailers, in-store pickup can be a powerful sales lever and differentiator during the Holiday season or year-round. It offers benefits for both the consumer and the retailer: a true win-win! For consumers, the ability to pick up products within the hour at a nearby store can help close the sale, especially for procrastinating gift-givers (not to mention it’s free).
Conversely, store pickup can be a retailer’s best friend during a free shipping promotion. First, it eliminates shipping costs the company would otherwise absorb. Second, it helps alleviate inventory headaches by taking excess inventory out of stores that would otherwise be shipped back to a warehouse or heavily discounted eventually to clear shelf space. And third, it helps drive incremental sales in-store during pickup. Thus, every customer you can convince to choose store pickup instead of free shipping is beneficial on multiple levels.
One way to help increase your mix of store pickup orders is to actively message this value proposition throughout the website. This marketing concept lends itself to A/B testing the most effective real estate for delivering this message, though testing isn’t required. In the example below let’s say the first 7 days you only promote free shipping, while during the next 7 days you place a banner in the checkout process for store pickup. Using a merchandising Custom Conversion eVar to capture fulfillment methods, the results show a decrease in the % of orders choosing shipping and an increase in store pickup, a win all-around! Not only did you save shipping costs, but you can partner with your finance team to measure the incremental in-store sales that result from the increased store pickup orders.
7 Days Free-Shipping Only
7 Days Free Shipping + Store Pickup Messaging
It would be remiss if I didn’t say that the best way to monetize the impact of free shipping with hard numbers would be to A/B test or partner with your finance organization, or both. Nonetheless, SiteCatalyst offers some great ways to monitor these efforts and provide direction for optimization.
Free shipping in one form or another can almost always benefit your business, since at the very least it should increase your website’s conversion rate. However, if you are not monitoring and measuring the details the business is likely not offering it in the most efficient manner. Don’t hesitate to use SiteCatalyst to optimize your free shipping efforts this Holiday season!
Nate Sperry is a consultant in Adobe Consulting, focused on digital strategy, analytics & optimization for retail & travel clients. This is one of a series of posts covering tips from our retail experts in Adobe Consulting related to Holiday ecommerce analytics.