Letter: Offer of Free Shipping Generates Best Response Rates
In my testing, free shipping often beat the control in terms of profitability on the first mailing. I found the benefit of free shipping varied with the audience (prospects, customers), the control version (the incentive du jour) and the specific direct marketing business.
In terms of ultimate profitability, there are some additional considerations. Free shipping always generated the best response rates, contributing to increased list rental revenues. Further, while maintaining a group of customers constant over the course of a full year (yielding 14 catalog mailings for each group), the reality is that the free shipping group, with the greater activity, would probably be mailed more often than the other group.
But the question posed was "How to Charge for Shipping and Handling." We all know "free" is much stronger than anything else. Something that I tried and found to be the best of both worlds was to add a handling charge to the order (depends on business and this level must be tested, of $1.50) and promote free shipping.