Smart Selling: E-Retailers Get Savvy About Online Customers

E-retailers are facing enormous pressure to succeed. Both dot-com outfits and the bricks-and-mortar retailers moving their business online share the pressure of spending tens of millions of dollars for a market-defining site — only to find that shopping carts are being regularly abandoned. According to a recent survey conducted by Bizrate and The NPD Group, 75 percent of online consumers quit the sales process before completing their purchases.

The battlefield has been set. E-retailers are spending millions of dollars on print, radio and television ads to attract attention and establish market dominance through brand awareness. But every one of your competitors is just a click away. A single mistake and all that money you spent driving a user to your site can go to waste. With such razor-thin margins, any advantage can change the playing field and determine the outcome, and one or two percentage points in conversion ratios can mean the difference between being the winner or loser in a vertical market.

Fortunately, all hope is not lost. E-retailers that are looking to tip the field in their favor don't have to look any further than their own site for answers about how they can better compete and get a jump on their competition. Every site tells a unique story: Why do users come there? Why do they leave?

By listening to the story your site is telling, you can better understand your customers and what they want, optimize your resource allocations and accelerate your businesses. While your competitors flood the market with broadcast messages, hoping to hit anyone who is listening, you can make strategic, surgical strikes and get the exact response you hoped for.

It all begins with understanding your online customer.

There Is No Such Thing as an Average User

E-marketers often mistakenly assume that there is an “average user” that typifies their overall user base. For example, they determine that their average user stays 2.3 page views per visit and spends $12.50 per purchase.

The reality is that most sites have clusters, or segments, of users who behave similarly. There probably isn't a cluster of people who stay 2.3 pages per visit and spend $12.50. Instead, there might be one large group of people who leave after the first page without purchasing. There might be another group who stay for a handful of pages and spend a few dollars per transaction. And there might be a third group that stay a long time, come back often and spend a lot of money. While this last group of people accounts for only 5 percent of your overall population, they are responsible for 90 percent of your revenue.

As soon as you recognize that there is no such thing as an average user, you can start making more intelligent decisions to get better responses. Instead of casting your net far and wide to get only a small return, identify your most valuable customers and focus your efforts on trying to acquire and retain them.

Which ads do they respond to? Which products are they interested in? How can you best service this group?

Next, look at the middle group of people and determine how they differ from your most valuable customers and what you can do to convert this group into your most valuable customers.

By making the simple observation that your customer base is made up of segments of users and then focusing on the needs and profiles of each segment, you can make much more intelligent decisions. Instead of using a shotgun approach and hoping to hit a few people who will buy, you can home in on exactly those users whom you are interested in and tailor your site and promotions in a way that is best suited to their needs and wants.

Experimenting Boldly, If Just for an Hour

But how do you determine the wants and needs of any given group? Are your customers price-sensitive? If so, how much? What happens if you offer a 10 percent discount versus a 5 percent discount? What if you offer free gift-wrapping? Or free shipping? Or enter people in a promotion? Which approach do people respond to?

There are so many possibilities for what drives your users, how can you ever know how they really feel? How do you make sure that you aren't giving away too much?

One of the beauties of the Internet is that it is a perfect forum for targeted experimentation yielding near-immediate feedback; a typical e-retail site receives thousands, if not tens of thousands, of visitors in an hour. If a retailer suspects that an offer of free gift wrapping might boost sales, it can test that idea online for one hour and measure the results — before it invests in truckloads of gift wrap.

With products from companies like Vignette Corp. and Net Perceptions, e-retailers can also test one sales offer on 10 percent of shoppers and a different offer on another 10 percent. Within hours, the online merchant can easily compare the offers' results and thereby revise the offers for maximum response, according to which tactic — discounts, cross-selling efforts or online advertisements — proved most effective. This willingness to iterate promotions and strategies is essential to e-commerce success.

Understand Why People Didn't Buy

Most e-retailers can tell you their most popular products off the top of their heads. But how many can tell you which products people aren't buying? Or, more important, how many can tell you which products people are most frequently looking at, putting in their shopping cart and then abandoning?

Many e-retailers focus their energy on understanding what is working. But in this process, it is hard to know what might be broken and hence how to fix it.

E-retailers have a variety of solutions when faced with the challenge of increasing sales. Should they spend more money on ads to try to bring users to the site? Should they offer better promotions to induce people who are at the site to buy? Or can they do something with the layout of their site to make it easier for people to purchase? Each one of these choices requires resources — time, money and personnel — and going down a wrong path can be very costly.

So instead of guessing where your problems might be, measure. What percentage of your users are coming to the site and never looking at your product catalog? If this number is high, it might point toward a poor site layout that isn't compelling people to enter your store after they come to your site.

Of the people who look at product information, what percentage wind up putting items in their cart? How about those people who search for items? Do they put things in their cart? How many products do people tend to look at before putting an item in their cart? Any of these answers might point toward a problem with users not being able to find the information they need.

Probably the most interesting question to ask is “What percentage of users initiates the checkout process but doesn't complete it?” If this percentage is high, you need to ask yourself why. Are they getting price shock from the cost of shipping? Are you asking too many questions? Are your questions unclear?

More importantly, as you make changes to your site design, revisit these numbers. Did that change improve things or not?

Mix 'n' Match

By mixing and matching these techniques, you can really gain a tremendous amount of knowledge about the behavior of your customers. Home in on your most valuable customers and experiment to see what things will help convert them into even more valuable customers. Look at your middle-of-the-road customers and try to figure out why they aren't more valuable.

It is very possible that in the end you will find that each of your user segments behaves very differently and responds to completely different stimuli.

Your one-page-view users might be very sensitive to your initial site design, and an improvement there could lead to big results. Your moderate users might be very price-sensitive. A slight discount or promotion might encourage them to open the floodgates and start purchasing more or more often, while customer service, loyalty programs, such as points programs, and ease of use might drive your most valuable customers.

Once you understand these dynamics, you can make a much more educated decision about where to invest your resources. And instead of just hoping for the best, you can have a strong belief that your efforts will have the intended effects.

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