Free shipping was one of the first promotions used in ecommerce, and was designed to stimulate purchasing online. In the beginning, shipping was a high barrier to entry for shopping online, since in-store pricing and online pricing were often identical, and shipping often appeared as an unwelcome additional cost. Now, years later, free shipping has become standard in many retail segments–and this standard is becoming problematic for many e-tailers as the price of gas, and therefore the price of shipping, rises.

Customers have come to expect free shipping, especially for orders of significant value (over $100). It's used by almost all sites in one way or another, and, if you're like many retailers, you'd like to stop this practice all together. Free shipping decreases margins and, in many cases, it can't be used along with other, potentially more attractive promotions. If free shipping is given to customers as a site wide promotion, you risk your customer double-dipping into your margins if other promotions are applied to an order.

In many cases, the main problem with free shipping is the way it's implemented and offered. If you ship a $50 order for free, it may cost your company as much as $10 to ship, and that may turn your $50 order from a low-margin but profitable sale to a loss. Allow other promotions to be tacked on, and your sale is suddenly running you deep into the red.

Customers don't necessarily see the actual value that free shipping has since shipping costs don't come into the equation until checkout. This means that a consumer won't actually see the value of free shipping until they've already decided to buy. For example, a plasma television may sell for $1000, and free shipping can cost the retailer up to $200–suddenly you're giving a 20% discount without giving the customer a sense of the real value of this promotion. At that point in the transaction, discounting is a wasted effort unless the retailer is experiencing high shopping cart abandonment (rates of over 45%). To inspire conversion, free shipping must be offered earlier in the sales process, well before a customer makes a purchasing decision and well before they hit the checkout button.

So where is offering free shipping effective? According to a recent survey of customers by Paypal and comScore, the number one reason for abandoned shopping carts is unexpectedly high shipping fees. So, it stands to reason that offering free shipping will hook those customers who abandon their carts once shipping is tacked on to their final purchase price.

But it's not that simple–after all, loyal customers will quickly identify this process and abandon carts regularly to get free shipping. A retailer can also limit free shipping to orders with no other promotions applied to the purchase, thus avoiding double-dipping into their margins. Randomizing the free shipping offer to recipients based on previous buying behavior will also help mitigate exploitation of this promotion.

In short, you need to make free shipping part of a larger promotion strategy where you segment your customers based on value. Test the price sensitivity of your customer base and experiment with new promotion types in different stages of the selling cycle. This old promotion still can convert customers if you consider the unique way you do business, and rethink the way you leverage free shipping to maximize its efficiency.