Free Shipping vs. Discounted Price: Which Fulfillment Pricing Strategy Is Better?
Picture this: You’re about to purchase a holiday gift online, and have narrowed your choices down to two listings. One is $49.99 and includes free shipping; the other is $44.91, plus $5.08 for standard shipping. It’s the exact same price, presented two different ways.
Which would you choose?
It’s a common conundrum among online sellers: Is it better to offer free shipping and charge higher prices to cover fulfillment costs? Or should you charge for shipping and offer a discounted product price?
The short answer is: It depends.
Different seasons and selling scenarios will lend themselves to different shipping pricing strategies. While there’s no one surefire tactic that will apply to every transaction, taking a few considerations into account can help make the decision easier.
Consider the psychology of online pricing
Every seller knows how important fast and free (or low-cost) shipping is to consumers. Surveys reveal that 60% look at the convenience of delivery options when choosing between competitors, and 45% will abandon carts when options are unsatisfactory. So it would be tempting to assume that shipping costs will always carry more weight than item price.
However, it pays to remember that a much more basic factor is at play — one that lies within deep-seated perceptions of retail pricing at large.
Research shows that when presented with multiple options during the discovery phase of the buyer’s journey, consumers tend to correlate higher prices with greater value and better quality. Robert B. Cialdini, an expert in the field of compelling selling tactics, describes this phenomenon in his book, Influence: The Psychology of Persuasion:
“Consider the strange behavior of jewelry store customers who swooped down on an allotment of turquoise pieces only after the items had been mistakenly offered at double the original price. The customers…were using a standard principle to guide the buying: expensive = good.”
Even as online shoppers comparison shop to find the best overall deal, there are plenty of times when a higher product price will be welcomed. After all, it can feel like a “dupe” if someone checks out the lowest-priced offer only to find that it’s in fact much higher once shipping is factored in.
Conduct a quick cost-benefit analysis
Before moving forward with one strategy over another, consider doing a quick analysis to determine which option is likely to help you gain more sales. For example, if specific SKUs have experienced a recent dip in sales, it’s probably not the best time to start increasing the price. On the other hand, you may risk lowering the perceived value of a product if you decrease the price too much when sales velocity is strong.
Keep in mind that you can change your strategy as needed. During peak holiday seasons, when consumers tend to spend more, you may want to use free-shipping thresholds to increase average order value (AOV) and make shoppers feel like they’re getting a good deal.
With an impressive 93% of shoppers willing to take advantage of offers to qualify for free shipping, this is often one of the most effective methods to use. Just be sure your advertised minimum threshold exceeds your average basket size to make it a cost-effective pricing strategy.
Consider the marketplace
In many instances, the tactic you ultimately use will depend on the marketplace or selling platform itself. As we’ve mentioned before, it’s usually a good idea to vary your fulfillment pricing strategies from one e-commerce channel to another. For example: You might offer a best-seller at one price on your e-commerce website, and then list that same product at a different price with different shipping options on Amazon. Diversifying your shipping pricing strategies across channels can help you reach different audiences with slightly different needs.
There are other variables, too — especially when you start to look beyond Amazon.
No doubt you’ve already carefully weighed your options when it comes to leveraging Fulfillment by Amazon or Seller Fulfilled Prime to offer free two-day shipping. But what happens when you start selling on niche marketplaces that take a much different approach to shipping and handling? What other considerations will come into play as you start selling your products to international audiences?
In these scenarios, you may need to get a little more creative and rely on your data to help guide shipping pricing strategies.
Now, back to our original question:
Which type of fulfillment pricing strategy works best?
With so many factors that go into each purchasing decision, there’s no one-size-fits-all approach that will work well in every instance. By evaluating the elements above, you can get closer to creating the right mix of shipping offers that resonate most with your consumers.
Looking for more ways to get ahead in the era of same-day shipping? Get additional tips for providing fast, affordable shipping — while keeping your own fulfillment costs in check — by downloading the free e-book: 3 Steps Toward Ultrafast (& Affordable) Fulfillment.
Looking for a better way to automate pricing changes for maximum profit? Check out ChannelAdvisor Elevate for Amazon. It’s a single, easy-to-use, standalone app with all the repricing and analytics technology of the ChannelAdvisor platform. And the best part? You can try it for free for 30 days and cancel anytime. Learn more here.