Commentary

Do Special Shipping Offers Really Add to Your Bottom Line?

Free and reduced shipping offers are ubiquitous in search results today. In fact, in some product categories, free shipping messages are now the norm rather than the exception. For instance, in a recent search on Google for the term bathroom faucet, all of the top-sponsored paid advertisers and the majority of the right-hand side paid advertisers mentioned free shipping in their copy.

These free shipping offers are becoming more and more commonplace, but can they really provide a lift to your campaign -- or are consumers increasingly immune to the message due to the very fact that it is so omnipresent? To answer this question, we analyzed the campaign results of a major consumer product brand for the 1st quarter of this year. This advertiser had included free shipping offers in the ad copy for specified periods in January, February, and March. Each of these offer periods was preceded and followed by a period in which no offer was included in the copy.

In analyzing the data, we found the most obvious change was a decline in the average order value (AOV) during the free shipping offer period. The magnitude of the decline varied, but there was a definite decline nonetheless. In January and March, the AOV declined by 2.2% and 3.1% respectively, while the decline in February was much larger at almost 20%. These AOV declines resulted in a concurrent decline in return on advertising spend (ROAS), a key performance metric for this campaign, during each of the offer periods. The decline in ROAS ranged from 30-70% during the free shipping periods, indicating a clear loss of efficiency during the promotional cycles.

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Given that other elements of the campaign remained constant during these periods, the declines in AOV and ROAS can likely be attributed to consumers' reactions to the free shipping offer. Online consumer behavior suggests that consumers are more comfortable making small online purchases when they do not have to pay for shipping. Without the offer of free shipping, the costs of the shipping may seem high relative to the cost of the item, and consumers may well avoid purchasing it online or else add additional items to their cart to take advantage of the efficiency of shipping multiple items together. Thus, when offered the opportunity for free shipping, consumers may tend to purchase lower-cost items they would ordinarily have purchased offline or grouped together with other purchases.

With this in mind, it is crucial that the free shipping offer generates enough additional sales to compensate for revenue lost due to lower order amounts. These additional sales are especially important for those advertisers that also make a small profit from their shipping charges.

In this particular case, the free shipping offer did indeed generate additional conversions. The offer generated between 15 and 70 additional conversions, depending on the period, and the conversion rate increased by between 0.3% and 2.0%. It is also important to note that the conversion rate declined when the offer was removed in two out of the three non-offer periods tracked.

In both February and March, the conversion rate increased during the offer period; however, when the offer was removed, sales declined to a level below that of the pre-offer period.

As the results from this particular case demonstrate, free shipping offers can have a number of effects on campaign performance. They are attractive to consumers, can help attract additional sales -- and are likely a common offering from your competitors, as well. However, the additional sales generated by such offers may well contribute to a lower-than-ordinary average order value. Further, the removal of the special offer can adversely affect the campaign, as consumers will either wait to see if the offer will return or turn to competitors who offer free shipping.

As a way to avoid the potential pitfalls of free shipping offers, companies will have to find other avenues to differentiate their shipping services and might consider emphasizing fast shipping instead, particularly just before major holidays.

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