What:

A research article on the impact of free shipping on profitability.

Why is it important for IADS members:

Although free shipping is a major marketing perk to generate additional purchases, it can also seriously degrade profitability.

Journal of Marketing research published in May an analysis carried on a large European retailer promotional campaigns, to evaluate the impact of free shipping operations. During the four weeks promotion period, free shipping impacted online order by an increase of +11%. However, at the same time such increase translated into high-return items being purchased, generating additional costs to the point that on average, the result of the promotion period equated to a loss of -0,7%.

According to the researchers, the rationale in customers’ mind is twofold: free shipping comes as a reward for taking a risk on a product, and in parallel, the feeling of gratitude for having shipping costs eliminated encourages them to make a risky purchase. At the end of the day, free shipping encourages customers to purchase products prone to be returned for any reason.

The academic team behind the research mentions that a way to avoid such problems and impacts on profitability could be to identify the highly-returned products and provide customers with more information on these, so they can make more informed choices.

Is Free Shipping Worth It for Companies?