Amazon is growing on-demand services after reporting a 20% sales increase in 2015.
The retailer figured out how to boost conversion rates and average order values.
When web-only retailer MyBabyClothes.com offered free shipping on all orders last year, customers responded in droves. But the numbers didn’t add up to what CEO Greg Sanders had expected.
“We were hoping that by offering free shipping, it would increase conversion, and it did,” he says. “But we didn’t anticipate that our average order value would go down from our average of $35, which it did. So free shipping was a net loser.”
Nonetheless, the test was worth it, Sanders says, for at least two reasons: It confirmed that MyBabyClothes.com’s customers would respond to free shipping as their kids would respond to candy, and it forced the retailer to craft a better formula.
In February 2012, Sanders started offering free shipping only on orders of $49 or more—putting the threshold at $14 above its average order value—a move that that led shoppers to spend more per order to avoid shipping costs. And with the same conversion rate as unconditional free shipping produced, MyBabyClothes.com realized it had hit its free-shipping sweet spot.
“Things changed literally overnight,” Sanders says. “We immediately started seeing higher average order values. And at the same higher conversion rate as with free shipping on all orders.”
After he started offering free shipping only on orders of $49 or more, the average order value rose by a third as many shoppers added items to hit or surpass that threshold, Sanders says.