Package Perfect: Free Shipping Without Going Broke

In October 2005, L.L. Bean announced it would offer free shipping throughout the holiday season. That year the company posted record sales. In 2006, L.L. Bean reversed course, not offering free shipping. The result? The company did not meet its sales goals. So this September, in honor of its 95th anniversary and as a reward to customers for stronger than expected spring sales, L.L. Bean announced it would again offer free shipping throughout the holiday season.

While offering free shipping may make cents (lots of them) for a big, well-established retailer like L.L. Bean, even with a potential bump in sales, it may not be a good business move for smaller e-commerce businesses.

To help you determine if offering free or discounted shipping is a good move for your business, particularly during the upcoming holiday season, Ecommerce-Guide.com spoke with three e-commerce site owners that had experimented with free or reduced shipping as well as with UPS and a small business shipping consultant.

Sweetwater Gives Customers Sweet Deal on Shipping
Since the 1980s, Sweetwater Sound, Inc. has included a handful of sweets with every shipment, a touch that has brought a smile to many customers' lips and has helped engender fierce customer loyalty to the online and catalog music retailer. However, when the company decided to offer customers year-round free shipping with no minimum purchase in 2005, that was sweet music indeed to customers' ears.

"We were the first and remain the only retailer in our industry to do that," stated Chuck Surack, Sweetwater's founder and president. "We also ship virtually every in-stock item the same day the order is received." At Sweetwater, "It's all about the customer," said Surack. And customers like free shipping.

How does Sweetwater absorb the cost? "We don't absorb it, as such," said Surack. "It's simply the cost of doing business, like having a state of the art distribution center and a world-class team of highly trained sales engineers."

Indeed, what makes Sweetwater's hundreds of thousands of customers so loyal, besides getting free candy, are perks like free lifetime service and technical support - and free shipping. As a result of these freebies, Sweetwater's sales have grown by more than 20 percent each of the last three years. And the company is on track for as much as 30 percent growth for 2007.

As for advice on whether you should offer free or discounted shipping, both during the busy holiday season and at other times, Surack had this to say: "Our experience is that customers place a high priority on free shipping, and yours may as well."

Fairytale Brownies Finds Free Shipping Can Work Magic with Customers
Gourmet brownie retailer Fairytale Brownies knows from experience that the words "free shipping" can be magical for sales.

"We've offered free shipping. We've offered 50 percent off of standard shipping. We've offered different types of offers like free two-day upgrade and free overnight upgrade," explained Hilary Moore, Fairytale Brownies' Web developer. And in various online tests the company conducted, customers consistently bought more when shipping was offered for free (or at a discount versus standard shipping).

However, the company is very strategic about when it offers customers shipping discounts. "We concentrate our free shipping or shipping discount offers to our off-peak season," said Moore, which helps generate revenue during the slower summer months.

To cover the cost of free or discounted shipping, Fairytale Brownies negotiates for the best rates with shippers (it recently renegotiated its contract with FedEx) and lowers its margins.

However, said Moore, "if we're not at least breaking even, then we wouldn't extend the offer."

As for offering free or discounted shipping during the upcoming holiday season, Fairytale Brownies co-founder and strategic planning team leader David Kravetz suggested caution. If you feel you absolutely need to offer some kind of discount shipping over the holiday season, he said, "Focus on prospects rather than on your best buyers."

(Continue to Page 2: More e-tailer input and shipping tips from the pros)

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