January 12, 2015

Hippoman's Big And Tall: Free Shipping

When a business is struggling, it's common to amp-up the promotions. Let's see if Hippoman's Big And Tall did that, as their business began to implode.

Here is annual demand, non-promotionally (no free shipping) driven:

#OMG as the kids say. Mr. Hippoman used to generate $45,000,000 a year in paid-shipping orders. Today, he generates just north of $15,000,000. Imagine the impact on profitability, folks?

Here's the graph illustrating demand from orders with free shipping.

Free shipping, once comp'd after 2012, did not help the business - while paid-shipping orders declined by several million dollars. That doesn't help the profit and loss statement, does it?

Now, I ran a couple of queries, to better understand how paid-shipping and free-shipping customers behave in the future.

  • In the next year, free-shipping customers generate 50% of their demand from free-shipping, and 50% from paid-shipping.
  • In the next year, paid-shipping customers generate 30% of their demand from free-shipping, and 70% from paid-shipping.
Yup - Mr. Hippoman is slowly training his customers to buy via free shipping.

Interestingly, free shipping customers repurchased at a 29% rate, while paid shipping customers repurchased at a 22% rate. This suggests that free shipping "works". So I ran another query, measuring the percentage of demand generated via free shipping by customer quality.

  • Next year, new customers will generate 53% of their demand from free shipping.
  • Next year, best customers will generate 60% of their demand from free shipping.
So there is a bit of a bias - it is clear that Mr. Hippoman is offering free shipping to best customers, causing best customers to repurchase. That doesn't mean that free shipping is fully responsible for the increase in repurchase rate - and given that repurchase rates are in free-fall, well, that tells us that free shipping is not truly helping.

Here's one final query. I analyzed the percentage of demand that comes from free shipping by marketing channel.
  • Telephone Orders = 50%.
  • Online Orders = 60%.
  • Email Orders = 69%.
  • Paid Search Orders = 55%.
  • Affiliate Orders = 71%.
Clearly, Mr. Hippoman uses email marketing as the primary channel to communicate free shipping to customers. Email and Affiliates then attract a discount-centric customer, and as our earlier query showed, customers become trained to purchase via free shipping.

Mr. Hippoman's team is creating a series of reinforcing negative feedback loops, don't you think?