In the world of online shopping, free shipping is the Holy Grail.
Walker Sands' 2019 Future of Retail Report cited that "free and fast" shipping continues to be the leading factor in increased online shopping transactions.
Global Web Index's Commerce Flagship Report stated that 53% of consumers find free delivery their main incentive to shop online.
FuturePay's research also found that 86% of consumers abandon shopping carts because of shipping costs.
Free shipping is one of the first things most shoppers look for.
Several online marketplaces offer free shipping on orders, and this article will look at some of the most popular ones.
We will also explore how these marketplaces are able to offer free shipping to their consumers.
But first, let's talk about the types of free shipping offers!
Two Types Of Free Shipping Offers Used in Online Marketplaces
Two types of free delivery offers are typically used on online marketplaces today:
Conditional Free Shipping
Conditional free shipping is where the online store offers free shipping with conditions attached to it.
Adding conditions allows the marketplace to offer free delivery while ensuring it can still profit.
There are a few ways to do this:
One is, setting a minimum order amount will prevent sellers from losing money over a small order amount.
A UPS study found that 58% of consumers are willing to purchase additional items to qualify for the free shipping promotion.
Many online retailers use an offer like this.
For e.g., this strategy is used by companies like Lego, which offers free delivery for orders $35 up.
Another way to apply conditional free shipping is by offering free delivery on selected items.
This strategy is often applied to items with low shipping costs and high-profit margins to maintain profitability after deducting shipping fees.
Making a limited-time free shipping event is one strategy online stores use to create urgency and get buyers to purchase during sale seasons and flash sales.
Examples of these are seen during Black Friday, other holiday deals, and Prime Day.
Using customer location is also an effective way to apply conditional free shipping offers.
This is the strategy applied by online retailers, including Zappos, MAC Cosmetics, and Nordstrom.
Free delivery can also be given as a loyalty perk or for signing up for a store's rewards program.
The Perfect Fit Rewards Program from The Men's Wearhouse Inc is an excellent example of this.
The store gives out free ground shipping on all orders with no minimum purchase required, whereas non-members pay $8 for their delivery costs.
Lastly, there are free shipping offers that organizations apply only to first-time customers. This is an excellent strategy for acquiring new buyers in the marketplace.
There are many options for creating conditional free shipping in a marketplace.
Unconditional Free Shipping
Lots of eCommerce stores offer free delivery of their products without conditions.
In a study by The E-tailing Group, unconditional free shipping was named by consumers as the top feature they're looking for when making a purchase on a website.
While this strategy is certainly attractive to consumers, there are only certain situations in which offering free shipping without conditions seems to work for the business.
One of those conditions is if the store only sells small, lightweight, and high-profit items.
With such high-profit margin items, the business can afford to cover the shipping costs.
Another condition for unconditional free shipping is a high volume of orders, often associated with big box retailers.
Stores like Target can manage to take out shipping costs and still thrive.
The conditions need to be right for unconditional free shipping, so be careful if/when you implement unconditional free shipping!
Four Mainstream Online Marketplaces That Offer Free Shipping!
Below are a few of the online marketplaces that have free delivery offers:
Amazon Prime Leads the Way with "Free Shipping"
The largest eCommerce marketplace in the world, Amazon, launched its Amazon Prime membership in 2005.
Amazon Prime is a yearly subscription membership service for $139 that offers free or discounted shipping on eligible products on the website.
Together with free shipping, members are given access to Prime Video, Amazon Music, Kindle lending library, Prime Gaming, and other exclusive deals.
Those who subscribe to Amazon Prime can also participate in Prime Day, a two-day shopping event where discounts on thousands of products are offered.
Prime Day started on July 2015 as a way to celebrate the 20th anniversary of the eCommerce giant.
Since then, it has evolved into an annual event celebrating Prime members, totaling 153 million in the United States.
Amazon uses the free delivery offer as a hook to get more subscribers to Prime.
Around 78% of Prime subscribers signed up for the service because of the free shipping offer.
While the free shipping promotion brings revenue from increased orders, it doesn't come cheap.
In just the fourth quarter of 2019, Amazon amassed $12.8 billion in shipping costs.
Even with increasing shipping costs, Amazon still makes a profit because the average Prime member spends around $1,400 a year.
With around 153 million members in the United States, the Prime subscription in itself generates over a billion dollars.
Amazon Prime costs a lot to operate, but the profit that comes in from it more than makes up for it (see link).
eBay Provides Free Shipping, Laying the Burden on Sellers
eBay, another global online marketplace, handles around 2 billion transactions per day.
Free shipping is a part of the game for eBay, with 71% of orders on eBay being shipped for free.
Unlike Amazon, where the company offers free shipping on its subscription service, eBay's free shipping offers are shouldered by individual sellers.
Sellers on the platform can either choose between a Flat Rate or Calculated Shipping.
In a Flat Rate Shipping condition, buyers are charged the same amount for items sold on the marketplace.
Sellers who choose this option have to keep track of each item they list to factor the shipping costs into the item price.
In Calculated Shipping costs, eBay will automatically calculate US Postal Service, UPS, and FedEx shipping costs for buyers.
The amount will depend on the package dimensions and location of both the seller and buyer.
This ends up being a more complex calculation when trying to determine the free shipping costs associated with your item.
At eBay, sellers need to be on top of the shipping charges they would cover to stay afloat if they offer free shipping.
Etsy Tries to Compete with Amazon Prime with Minimum Purchase Amount Free Shipping
Etsy, a platform for selling one-of-a-kind vintage and handmade items, has a conditional free shipping offer for participating shops in the United States.
The platform started the offer as a means to compete with Amazon Prime, but without the subscription associated with it.
The website requires a minimum purchase order of $35 or more from a single participating shop to qualify for the free shipping offer.
Sellers who participate in this offer can offer free shipping on selected items on their Etsy shop or Guaranteed Free Shipping.
Guaranteed Free Shipping sets free delivery across the seller's whole shop.
Sellers with Guaranteed Free Shipping will have access to Etsy's Smart Pricing Tool, which allows them to adjust the prices of their items to factor in the shipping costs.
Offering free shipping on the website does more than attract buyers.
At Etsy, items from stores with higher Gross Merchandise Sales end up a priority on product searches.
You may want to look at Etsy's free shipping model to grow your online marketplace while guaranteeing your margins.
Overstock Ends Up Creating Permanent Free Shipping Offer Across the Boardck
Overstock is an online retailer founded by American businessman Patrick Michael Byrne in 1999.
Since then, Overstock has grown into a $2.756 billion company.
The platform is headquartered in Utah and sells a wide range of products on its platform, including furniture, decor, rugs, bedding, and bath products.
In 2020, Overstock announced that it would begin offering free standard shipping for everything with 1-2 days delivery.
The company's free shipping offer does not require a subscription, annual fee, or minimum purchase price.
They also do not have a threshold on item size or price.
The offer was initially created during the state-mandated lockdowns to help consumers with the costs of buying necessities online.
It became so popular with new and existing customers that the company decided to make it a permanent fixture on the platform.
Before this, Overstock had a free shipping program for orders $45 up or for members of their loyalty program, Club O.
If you're a large enough marketplace, there seems to be a threshold where offering free shipping across all your products might become a compelling option to retain and attract customers.
Summary
There are many compelling reasons to offer free shipping in your online marketplace.
They include; new buyer acquisition, increased revenue, improved conversions, and customer loyalty.
With consumers often expecting free shipping from retailers, online marketplaces that don't have free delivery are likely to continue falling behind.
The strategy then becomes incorporating the costs of "free shipping" into the price structure, so the marketplace is sustainable.
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