Yes, it can be. But it depends on the product/market and competition. For example, I worked with a client website that dealt with furniture. Free shipping if you are doing a furniture site is essential. Sure cost is rolled in. But if you try to do a furniture site without free shipping you are going to have difficulty with my experiences ... because the competition's positioning with this.
My advice, go with free shipping and using it as an advantage within your marketing materials. For example, in your ppc ads communicate that you provide free shipping.
My experience also is that with seo, some do search free shipping keywords when purchasing products. It is relevant. If you are still not sure, test it to find out first hand.
Quote:
1)I currently have the lowest price of any of my competition
- they all offer free shipping but have higher prices as the price is built into the product
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You are making it difficult for your customer to determine that. Offer free shipping and the lowest cost and you will have the highest rate of conversions based on my experiences.