You’re shopping online and go to check out, only to realize you’re $10 away from qualifying for free shipping. You can fork over $4.99 for shipping, or find another item to tack onto your order. No brainer, right?
By encountering a seemingly rational choice about shipping, you’ve been prompted to happily increase your order amount. This is why 60% of ecommerce companies cite “free shipping with conditions” as their most successful marketing tool.
If you are an ecommerce business, optimizing your free shipping threshold works because it plays on consumer psychology. Specifically, offers of free shipping tap into how we rationalize our shopping behaviors, the psychology of choice, and the value we place on the concept of “free.”
Rationalizing shopping online
Most shoppers are still more accustomed to the offline store than the online environment. Because of this, we lack the context for understanding how shipping costs factor into online shopping.
We are loss-averse and effort-averse
Free shipping helps us rationalize buying something online instead of going to a store. If shipping turns out to be too expensive for an item that we could just as easily get at the store down the street, the rationalization fails, and we abandon our carts. “Unexpected costs” is the number one reason shopping carts are abandoned.
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The fact that the costs are “unexpected” is significant. Etsy recently ran a round of experiments that prevented customers from seeing shipping costs until checkout, and sales dropped, sparking public outcry from both buyers and sellers. Whatever your shipping policy is, transparency is key.
We don’t see shipping for online purchases as an extra service
If you buy something online, you have to have it shipped. There’s no way around it. This is very different from the traditional model, where having an item shipped to your house is an above-and-beyond, special service, because everyone else has to go to the store. Because shipping is required, we perceive shipping costs for online purchases as an annoying extra fee. Some are predicting that in the future, because of this new cost model, all shipping will be free.
The lesson here:
Customers view it as unreasonable to tack on an “extra fee” for something that is required, even though they understand that there is no such thing as truly free shipping. The key is to be as transparent about shipping costs as possible, so that the customer doesn’t feel “taken advantage of” at the point of purchase.
The illusion of choice
Consumers love making choices, even when they’re somewhat artificial
Seeing a free shipping option gives us a “choice”
If we’re going for cost-effectiveness in shipping, we’ll be looking at making a choice between free shipping, and the next cheapest option. A choice between two options (one of which appeals to our desire to acquire more stuff) is the simplest and most appealing kind of choice. We know companies aren’t taking a loss on shipping – they’ll get their money somehow – but when we see it presented as a choice, we feel a lot better about it.
By shopping online, we feel we are choosing the more convenient option
Choosing to shop online feels like a choice to avoid all the inconveniences of traditional shopping. Now we have two options to buy most things that we want, and when we pick the “convenient” one, the cost of shipping is the only bump in the road. Shipping costs generally feel like something we think we shouldn’t have to pay for, even though they are built into everything we buy traditionally (tomatoes at the grocery store are marked up to cover shipping costs), not to mention our personal transportation costs when we go to a store (gas, bus fare, etc.). We only feel the pain of these costs when we see them itemized.
The lesson here:
You may not be able to offer free shipping on every purchase, but you should make it an option at some order value. By finding your ideal free shipping threshold you’ll be able to motivate customers to spend more and your customers will feel in control of what they’re spending on.
The power of “free”
We see something “free” and automatically overvalue it
According to Dan Ariely, behavioral economics researcher, people typically overvalue the benefits of “free” items even when compared to better-quality items that cost a small price (i.e. most overwhelmingly prefer a free Hershey’s Kiss to a 14¢ Lindt truffle). The concept of “free” is so powerful that when Amazon introduced free shipping in some European countries, the number of orders increased dramatically, everywhere but France. Instead of being reduced to zero, the shipping price in France was mistakenly reduced to 1 franc (about 10¢), and this was enough to prevent a jump in sales. People place such a huge value on “free” that they viewed 10-cent shipping as not a good enough deal to sway them.
We feel uncertainty around the benefits of options that cost money
People have a hard time measuring the utility they expect to receive from purchasing an item and struggle to translate its value into dollars and cents. How much is that designer t-shirt really worth? That latte? Is it worth that price? This uncertainty adds a negative element to our consumer experience. Free options, on the other hand, have no downside. Our emotional response to them is much more positive.
The lesson here:
When in doubt between offering a product discount or free shipping, go with free shipping. While the monetary amount might be exactly the same, customers will value “free” more.
Make it work for you
Free shipping influences consumer behavior on a deeply psychological (and often irrational) level, adding a powerful boost to your average order value. If you need help finding your ideal free shipping threshold, be sure sure to check out this how-to guide. It will help you find the ideal threshold to turn free shipping into your best marketing tool.