A paper published by Wharton marketing professor David Bell details the online consumers’ psychology when it comes to shipping charges. He says that online retailers use it as a promotional tool. “a free shipping offer that saves a customer $6.99 is more appealing to many than a discount that cuts the purchase price by $10”, clearly explains the psychology.
He gives advise about the pricing strategy when it comes to offering free shipping if the purchase hits a threshold.
“A firm with already low prices, relative to the model, should drop prices further when lowering the threshold. A failure to do so would give consumers a benefit at the firm’s expense, Bell said, because consumers would hit the free shipping threshold more often. Conversely, a firm with high prices should increase them further when lowering the free shipping threshold, since the company is likely to be paying shipping costs more often. “In the latter case, people pay more for the products, but they will more often get free shipping. In the other case, they will pay less for the products, but more for shipping,” Bell says. “So, the total cost of products and shipping cost will net out to be the same in both cases…Ultimately, the rational consumer is indifferent.” ”
Clever paper and now, in 2008, such a research will be more accurate because more sample is available.
I am interested in psychology very much. If you have a any links, please do give by commenting.
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