Impact of Free Shipping Threshold on PC and Mobile Channels: Evidence from an Online Retailer

Abstract

Problem Definition: Many online retailers offer free shipping services if customers spend more than a threshold amount. We study the impacts of the free shipping threshold on consumer shopping behavior across two different online channels, i.e., mobile and PC channels. Specifically, we focus on customer order padding behavior, i.e., strategically adding items to a shopping cart to qualify for free shipping.

Methodology and Results: We use a unique transaction-level dataset from a large online retailer to conduct a series of empirical analyses. We find that customers are more likely to pad their orders on the PC channel than on the mobile channel. We attribute this impact to the different search costs on the two channels. Furthermore, we find that the approach customers take to pad their orders is also different across channels. Specifically, in order to increase basket size, customers on the mobile channel rely more on buying a larger quantity of the same item, while users placing their orders on the PC channel prefer to add new products to the shopping cart and/or to purchase higher-priced substitutes.

Managerial Implications: Our paper highlights that the PC and mobile channels have different impacts on consumer order padding behavior. Therefore, as retailers with traditional PC channels move towards mobile channels to engage with customers, it is imperative for managers to adjust their shipping policy accordingly.

Keywords: e-commerce, mobile, multi-channel retail, free shipping threshold, consumer behavior