In 2006, a Wharton professor first noticed that online buyers were more likely to respond to a free shipping offer that resulted in a savings of $6.99 over an outright savings offer of $10. The explanation was that it made the online price more comparable with the offline equivalent.
I’ve been on a mission to understand online buyer behavior, and in this column I’ll look at the relationship between the cart value and the shopping cart abandonment rate. What are key price points that trigger abandonment? And can different pricing tactics lead to more conversions without eroding margin? I began my research analyzing a random sample of 264,631 abandoned shopping carts in August 2011, from a cross section of B2C e-commerce sites.
What we already know is that the value of the shopping cart has a disproportionate impact on whether an e-commerce purchaser will buy or abandon. What we have discovered is that it’s not a linear relationship and too simplistic to assume this as a general rule. This leads us to conclude that there are three promotional tactics that merchants should test this holiday season to improve conversions:
- Offer discounted shipping for low cost shopping carts.
- Set a $99 minimum order for free shipping.
- Consider specific promotions for individual products with varying abandonment rates.
1. Offer discounted shipping for low cost shopping carts. As might be expected, higher value shopping carts are abandoned more frequently, and as a broad rule, this holds true. Surprisingly though, as you can see in the chart, lower value shopping carts are abandoned often, as well.
What appears to be happening is that customers abandon when the ratio of shipping cost to the value of the cart approaches 100 percent. Many people face an “emotional block” as the shipping costs approaches the cost of the item(s) in the cart. Would you buy a $19.99 item if it costs an additional $14.95 to ship? In this case, the shipping cost is 75 percent of the item value.
Online retailers should review the ratio of shipping-cost-to-cart-value for some of its lower value abandoned carts and then consider adjusting shipping policies to achieve a ratio below the acceptable threshold of 50 percent.
2. Set a $99 minimum order for free shipping. Retailers know that customers are sensitive to perceived price points. For example, a $19.99 item seems to be cheaper than a $20 one, at least by more than 1 cent. We perceive the $20 item to be significantly more expensive, even though we know it is not. As you can see in the chart, online shoppers have the same emotional response. When we analyze the shopping cart abandonment rate curve by smaller price breaks for carts up to $200, we find there’s an emotional hurdle close to $100.
What this means for e-commerce sites is that the abandonment rate spikes at key price points. At $100, the spike is the most significant and has the highest volume, but at $250, $400, and $500, you will most likely see similar spikes. These are great break points for offering minimum order free shipping, which will help with the low value cart/high shipping cost problem by encouraging customers to add more items to their carts to reach the free shipping minimum.
We’ve asked retailers that offer $99 minimum order free shipping how they arrived at that particular threshold. Their answer is that, through trial and error, $99 is the best balance between changing customer behavior and maintaining margin. This data suggests that, from a customer perspective, free shipping just below the critical $100 threshold is well worth testing.
3. Consider special promotions for individual products with varying abandonment rates. Different products get abandoned at different rates, and it’s amazing to see the huge difference. For example: two items at the same online retailer both cost $199. You might not be surprised to learn that an item costing $199 is abandoned frequently, at 95 percent of the time. That means that when this item is added to the cart, the item is purchased only one in 20 times.
But figure this. On the same site at a different item, also costing $199, the item is abandoned only 32 percent of the time, and gets bought two out of every three times. While it is worth evaluating the difference between the product specifics between these two items, online retailers should consider special promotions for the item abandoned more frequently.
If both of these products at $199 are frequently abandoned, we highly recommend further examination. Start by building a spreadsheet of frequently carted items and calculate an abandonment ratio for each product. This will help you identify frequently abandoned items and opportunities for specific product promotions, as well as zero in on other opportunities to optimize the copy on the product detail page to secure the conversion.
These three techniques will help to drive conversions this holiday season. If you are able to offer site wide free shipping as part of your peak promotion package, then this will be universally popular. If you cannot, then minimum order free shipping, together with specific incentives for high abandon or lower value carts should prove a successful formula.