If free shipping hadn’t increased returns, the retailer’s profits would have increased by 3.3 percent. They found that the free shipping promotions increased net order volume by 7.4 percent, but that “higher returns and lost shipping revenue negate this and profits decrease 0.7 percent,” they write. This is the period the authors studied to estimate a model on the effect of free shipping on product returns and profitability. But six times over a three-year period from 2010 to 2013, the company ran a free shipping promotion on outbound orders. The retailer usually charges “outbound” shipping fees and provides free returns.

In their study, the authors examine data from a leading online retailer that offers free shipping promotions on a wide range of products, from apparel to electronics. Therefore they are more likely to return them.” That is, they buy products that may not turn out to be exactly what they wanted. “We find that the free shipping promotions increase returns,” Neslin said, “because they encourage customers to take risks. The authors uncover some bad news for online retailers: the extra profits (in the form of increased orders) a retailer gains from offering free shipping are more than offset by the rate of product returns. In a new working paper, “Free Shipping Promotions and Product Returns,” he and Edlira Shehu of the University of Southern Denmark and Dominik Papies of Universität Tübingen in Germany investigate how these phenomena work in combination. Scott Neslin, the Albert Wesley Frey Professor of Marketing at Tuck, has been studying sales promotions for decades. By 2013, that number had increased to almost 37 percent. A study in 2006 found that 5.6 percent of online purchases were returned. At the same time, the rate of product returns has grown immensely. These days, free shipping is among the most popular promotions online retailers deploy, and consumers have come to expect them whenever they shop online. The company worried that consumers wouldn’t be willing to buy shoes without trying them on, so it offered free shipping and free returns, thus eliminating the risk the shoes didn’t fit. It’s unclear when, exactly, the trend of free shipping began, but a good starting point is probably the 1999 launch of Zappos, an early online shoe seller.

Make a free id free shipping no cost