New studies are revealing how free delivery can boost volumes of sales, but it can also minimize profit margins. There are a number of strategies that should be applied to make sure it boosts sales without touching the pocket.
Strategies that work
Retailers are operating in a difficult economic climate. It’s tough to strike a balance between offering delivery options your customers will use while also making a profit.
According to a recent study called RetailX Europe Top1000 report 2023, only 16% of retailers offer free delivery on all orders. It helps boost the volumes of products ordered, but it also eats into profit margins. It therefore makes more sense to offer free delivery on smaller high-volume products.
This is mostly seen by jewelers. Another popular option is to offer free delivery when shoppers spend a minimum amount. Nearly half of retailers have used this strategy in the last year. However, it may reduce the volume of sales made. Industries which make use of this include stationary shops and maternity clothing stores.
Free delivery attracts customers
Free delivery is a great strategy to attract more eyes to your website and welcome new visitors. At the same time it also encourages existing customers to make a purchase or two. But it comes at a cost.
According to the RetailX Customer Value Chain Europe 2023 retailers are now thinking strategically about using free delivery. RetailX research has found that fewer retailers are now offering free delivery on all orders. “This has fallen by two percentage points (2pp) to 16% of 895 retailers assessed on this metric both this year and last year.”
Which industries are more likely to offer free delivery
Jewelry brands and retailers are preferring to use free delivery more frequently. Nearly 40% of the Top1000 jewelry brands and retailers are offering free delivery.
Software companies and music industries are also more likely to offer this type of delivery option.
- Software 34%
- Musical instruments 27%
- Automotive equipment 25%
- Consumer electronics 24%
Spain is more likely to offer free delivery
Free delivery orders are more likely to come from Spain (23%), according to the RetailX study. Liechtenstein offers 22% free delivery on all orders, and Italy 21%.
Less such delivery options are offered by Iceland (4%) or Latvia (7%). The study has found that it likely reflects the relative costs of sending goods to those markets. The sharpest decline in use was in Denmark (-2pp to 17%), while the UK saw a 1pp decline, to 19%.
Retailers have limits
With free delivery dragging profit margins down, RetailX has found that almost half of retailers that took part in the study and measured since 2016, now require shoppers to place a minimum order before offering free delivery.
It’s most common among these industries:
- Retailers selling sports and leisure products – 64%
- Book retailers – 62%
- Flower shops, gifts and homewares – 34%
It’s also limited to certain locations, with Ireland 50% likely to offer a minimum spending budget for free delivery, followed by Spain (49%) and the Netherlands (48%). It is however less common in Malta (32%) and Estonia (34%).
Tough economy impacts loyal customers
The RetailX study has found that as customers are weighing up the cost of living and trying to find value for their money, retailers are also finding ways to retain existing customers. “In doing so, they are prioritizing the lifetime value of their most loyal customers who, over time, will be likely to spend more than others.”
How Amazon wins customers
Amazon has a smart approach to consistently grow new shoppers into loyal customers. Visitors at Amazon’s Spain website are offered free delivery on their first purchase.
The RetailX report points out that this is a delivery pricing strategy. “It’s also used to offer convenience while boosting average order values. In France, Amazon offers free delivery for orders over €25, while delivery costs for smaller orders range from €0.01 for books to €4.99 for non-book orders.
The minimum price strategy incentivizes larger orders, while Amazon Prime encourages both smaller and regular orders.
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About the author
Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
