The Effectiveness of Membership-Based Free Shipping: An Empirical Investigation of Consumers’ Purchase Behaviors and Revenue Contribution

Abstract

Membership-based free shipping (MFS) has become increasingly adopted by online retailers. However, its effectiveness is understudied. This study leverages a consumer transaction dataset provided by an online retailer and uses a stacked difference-in-differences approach to quantify the enrollment effect of MFS on consumers’ purchase behaviors and their net revenue contribution to the retailer. Interestingly, MFS enrollment does not lift average consumers’ spending at the beginning of the enrollment as they break down large orders into smaller ones. Retailers do not gain incremental net revenue due to the increased shipping costs during this period. However, the free shipping benefit may build a switching barrier that motivates consumers to purchase more often with larger order sizes over time. It eventually leads to increased spending and revenue contribution. MFS also increases members’ purchase variety and impulse purchases. In addition, the authors find that there is a greater increase in net revenue contribution after enrollment for light buyers, variety seekers, and those who are willing to pay shipping fees before enrollment. Surprisingly, MFS has a negative impact on the revenue contribution of heavy buyers, the conventional best-value consumers. Moreover, MFS can effectively strengthen consumer-retailer relationships by reducing customer churn.

Consumer emotional experience research on online clothing tactile attributes: evidence from physiological polygraph

“…This paper may not be practically suitable for all online shopping scenarios, but it shines a light on membership value-added services for experiential products retailing. For example, (1) if retailers leverage membership services and give away commonly seen standard fabrics to members (Guo and Liu, 2021), then consumers who have a membership status may simultaneously experience tactile attributes when shopping online, which helps with their decision-making. (2) When clothing manufacturers have developed some new fabrics, consumers may not have a perceptual knowledge about them.…”

Have Your Cake and Eat It? Price Discount Programs under the Membership Free Shipping Policy in Online Retailing

“…In e-commerce, MFS is widely used [8,9]. Some of the early literature focuses on analyzing consumers' shopping behavior using member data [10]. For example, online retailers can analyze the shopping behavior data of members and non-members to determine the difference between them [11,12].…”

How Own Delivery Services Influence Customer Behavior and Sales in Online Retail? Building Trust and Improving Delivery Quality in Digital Economy

“…Both studies focus on third-party delivery logistics and not ODS. Guo and Liu (2023) investigate the impact of membership-based free shipping on consumers' purchases and firms' revenue. However, their study pertains to delivery fees and not the value and causal impact of ODS.…”

“…Second, our study contributes to the emerging marketing and operations literature on the last-mile problem by investigating the value of ODS. Although recent literature has started to examine the last-mile problem (Cui, Li, and Li 2020;Fisher, Gallino, and Xu 2019;Guo and Liu 2023), it does not focus on ownership of the last-mile delivery. Our study is the first to empirically estimate the sales impact of ODS and demonstrate the effectiveness of self-ownership delivery service.…”