Up until recently, we charged $25 shipping (or local currency equivalent) on all our orders. This equated to about 10% of the total cost of an average order. We had discussed and debated whether to offer free shipping, as this is generally considered industry best practice, but we liked the fact that charging shipping gave us a way to offer a promotion (free shipping) that meant we didn't need to discount our product. We also felt that 10% wasn't significant and that people who had designed their shoes and were ready to place an order were already very committed on our site and unlikely to be put off by free shipping.
I was chatting with Ahmed Fahour, the CEO of Australia Post at the Prime Minister's Forum on the Digital Economy and he shared the story of a test run on eBay for shipping costs. A watch was being sold and an A/B/C test was run to determine the best way to sell it:
1. $25 for the watch and $25 for shipping.
2. $40 for the watch and $10 for shipping.
3. $50 for the watch with free shipping.
Any guesses as to what the break up of sales was? Apparently almost no one purchased under scenario 1. 20% of the sales happened under scenario 2, and 80% of the sales happened under scenario 3! Having 50% or even 20% of the total cost being shipping is quite different to 10%, but it's still very clear that people don't like to pay for shipping.
We hadn't adjusted our prices since launch so with this shipping test in mind we decided to rejig our pricing late last year and offer free shipping. Unfortunately it was too difficult to run an A/B test of pricing on our site, as prices are listed in so many places and needs to be incorporated into our back end accounting systems, and we made a whole range of changes to the site at the same time, so we don't have definitive results on whether free shipping has made a difference but our gut feel is that it's been a small positive.
I'd love to hear results from anyone who has been able to run a free shipping A/B test on an online retail site.