Free delivery?...I’ll take it all!

Online shopping; my new favourite method of procrastination. I may not have the best self-control, but it seems some websites are able to draw me in much easier than others. Turns out 2 short words may be all it takes to get me…‘free delivery’.

The pull of this deal can be largely explained by Kahneman and Tversky’s (1979), prospect theory, which states that ‘loses loom larger than gains’. This means that we put more emphasis on avoiding loses than we do achieving gains. For example, we would prefer not to lose £10 than to gain £10. This is easily applied to shipping costs as the offer of free delivery means we are avoiding spending more, which in itself would be a loss.

Not only does free shipping entice more people past the checkout point but it also leads to fuller baskets (Keeney, 1999)! Some shops put a threshold on free shipping, where it can only be gained if you spend a certain amount. Loss aversion here may lead people to add another item to their bag just to avoid the loss of having to pay for shipping. A study by UPS (2014), showed that in the US 58% of people shopping online added more items to their shopping carts to meet the threshold for free shipping.

No one likes nasty surprises! I often find myself immediately going elsewhere if I get through to pay only to find out that an extra £5 has been added to the cost! Unexpected costs have been highlighted as the number one reason why people abandon their online baskets (Kukar-Kinney & Close, 2010) with one report showed that 60% of people abandoned their baskets when presented with this situation (Jupiter Communications, 2001). We don’t expect to have to pay for shipping and need to rationalise our choice to shop online, rather than in a store, by making delivery free this helps us tell ourselves we made the right choice.

Retailers take note; Losing money from shipping costs may just gain you money in the long run.

References:

Jupiter Communications. 2001 Creating loyalty: Building profitable relationships. Jupiter Vision Report: Digital Commerce, 2

Kahneman, D. & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263-291.

Keeney, R. L. (1999). The value of Internet commerce to the customer. Management science, 45, 533-542.

Kukar-Kinney, M., & Close, A. G. (2010). The determinants of consumers’ online shopping cart abandonment. Journal of the Academy of Marketing Science, 38, 240-250.

UPS survey (2013). UPS pulse of the online shopper. A study of the online customer experience.