The silly season is upon us and if you haven't already done it, you might be considering adding a promotion to your e-commerce website. One sure fire way to increase sales online, is to give something away for free. It could be tempting to have a promotion along the lines of '10% discount on all products till 25th December'. However, numerous studies (including this article published in Marketing Science journal) show that a more effective offer would be 'Free shipping on all orders till 25th December', even though the discount value of the 10% off offer is greater than the value of the shipping.
Given the choice of two offers, rationally it would be expected that the offer with the greatest benefit would be the most popular. However, it has been proven many times, that buyers will choose the offer of something 'Free' over a discount even if the net result of the discount means a bigger saving. According to Shampanier, Mazar, and Ariely (2007) “People experience more positive affect when facing a free offer compared with other offers…”. This shouldn't work, people are smarter than that right? Well, there is some fairly compelling evidence that it works very well indeed.
Obviously buyers don't believe that an on-line store is actually giving something away for free, they will realise that the costs are being covered elsewhere. However, without conscious thought and calculation, the power of free can have an almost irrational effect on the cost-benefit of an e-commerce transaction. In an experiment in the previously mentioned article, participants were offered the choice of either, a $10 gift certificate for free, or a $20 gift certificate for $7. 100% of the participants chose the free $10 gift certificate and, therefore, a benefit of $10 over a benefit of $13.
Amazon experienced this first hand when introducing free shipping in Europe, the number of orders increased dramatically in all countries except France. When investigated, the company identified the reason. France was the only country where shipping was not free, but reduced to one franc instead. This further reinforces the theory that 'Free' is far more appealing than a discount or even 'Almost Free'.
Each company will need to calculate the point at which 'Free' kicks in for the most benefit to the bottom line. For example a limit of 'Free shipping with purchases over $200'. If set correctly, online retailers should soon see customers adding extra items to hit the threshold to get the free item.
One way to test this theory for your business, would be to send an email to half the database with a voucher code, to receive a percentage discount. Then send another email to the other half, with a free shipping or free add-on deal. Then collect and anlyse the results.
If you need help to do set up the analytics to collect the relevant data or with the email campaigns then talk to OneClick. The OneClick team can identify effective strategies to help increase online sales for your business.