Shipping strategies in cross-border e-commerce: Advantages and disadvantages of free shipping

Hello, my name is Eugene. My name is Eugene and I am a consultant.
E-commerce is gaining ground as a way to sell products across borders. Among them, "free shipping" is a strategy adopted by many online stores. However, in order to properly implement this strategy, it is important to understand its advantages and disadvantages.

What is a free shipping strategy?

Free shipping can be a major incentive for customers to decide to purchase a product. Online retailers will take advantage of this to induce customer purchase behavior and increase their own sales and profits. However, when adopting a free shipping strategy, it is necessary to carefully evaluate whether this is economically feasible for the company. Many factors come into play in this evaluation, including the type of product, the consumer's geographic location, and the contract with the shipping company.

Advantages of Free Shipping

Adopting a free shipping strategy has the following advantages

1. Increased purchase intent
   When consumers find an online store that offers free shipping, they are more likely to consider purchasing from that store. The advantage of being able to purchase products without worrying about shipping costs is a big draw for consumers.
2. Reduced cart abandonment rates
   Free shipping is a powerful way to prevent consumers from abandoning their carts. Many consumers may discontinue a purchase due to shipping costs that suddenly appear during the checkout phase. Free shipping is an effective way to prevent this.
3. Increase average order value
   Offering free shipping on purchases over a certain amount can encourage consumers to make additional purchases, thus increasing the average order value. This can also be a way to partially offset the gains from applying a free shipping strategy.
4. Reinforcing customer loyalty
   In the long run, free shipping contributes to enhanced customer loyalty. Customers have a positive impression of stores that offer free shipping, increasing the likelihood of repeat purchases.

Disadvantages of free shipping

On the other hand, it is important to understand the disadvantages of a free shipping strategy.

1. Decrease in profit margin
   Profit margins on products may decrease. This is because if the company bears its own shipping costs, those costs are deducted from its profits. This problem is especially acute when shipping distances are long or goods are heavy.
2. Increased shipping costs
   When shipping costs to a particular region are high, it becomes difficult to employ a free shipping strategy. It can even exceed the price of the product itself. Therefore, it is necessary to consider whether or not to apply free shipping to different regions.
3. Decreased price competitiveness
   Raising the overall price of a product to cover shipping costs may reduce price competitiveness compared to competitors. Therefore, when setting pricing, it is necessary to take into account the overall price of the product, including shipping costs.

How should we choose a shipping strategy?

The free shipping strategy is clearly a beneficial tool for companies. On the other hand, however, it can also decrease profits. Therefore, it is important to select an appropriate shipping strategy.
First, a company needs to understand its own cost structure and profit margins. This includes the cost of goods, the cost of logistics, and the selling price. Based on this information, determine if free shipping is feasible.
Next, it is also important to understand customer expectations and behavior. Research how much customers are willing to pay for shipping and the extent to which free shipping affects their willingness to purchase.
We will also research your competitors' shipping strategies. This will help you find out if your shipping strategy is in line with the market or what you need to improve in order to remain competitive.

Summary

Free shipping is an attractive offer for consumers, contributing to customer acquisition, increased customer satisfaction, and enhanced loyalty. At the same time, however, there are risks associated with it, such as lower profit margins, higher shipping costs, and less competitive pricing. Therefore, each company should find an appropriate shipping strategy tailored to its own business model and market environment. To do so, it is important to understand one's own cost structure, customer expectations and behavior, and competitors' strategies. Find the optimal shipping strategy and you will be on your way to success.