Behavioural psychology > Cosmetic changes

Behavioural psychology > Cosmetic changes…that’s what a new report on Ecommerce by Qubit claims. Now, the company it has to be said has somewhat of a play here selling behavioural technology. According to the company, “Qubit’s technology prioritizes the biggest opportunities for revenue generation so you can deliver personalization that makes an impact”. Yeah.

Regardless of this, the report itself is well worth your time. *Spoiler Alert*…these were the key findings in order of importance:

  1. Scarcity
  2. Social proof
  3. Abandonment recovery
  4. Product recommendations
This figures; some of the most successful ecommerce stores are classic examples of these e.g. Amazon’s product recommendations. Perhaps but not totally unsurprising is scarcity – this very concept is winning offline (Zara, HM etc). What’s worked for your ecommerce store? Let us know in the comments.

Chewy Acquired by PetSmart

In a deal announced by the best ecommerce reporter, Jason Del Rey, Chewy.com has been acquired by PetsSmart for over $3 billion. Yes, billion. Similar to the recent Walmart purchase of Jet.com, is this nuts?

Forbes recently wrote about the company, of particular interest:

One pet industry veteran, who says he knows three people who are familiar with Chewy’s finances, doubts the company will reach profitability. He says Chewy’s average sale is $75, its average margin after discounts 30% and its average cost of delivery–which Chewy offers for free on orders of more than $49–around $12. A competitor estimates that Chewy’s customer-acquisition cost could run as high as $200 per first sale, given that the company pays to appear at the top of Google searches for each of the hundreds of brands it carries. “The bottom line is that Chewy is incredibly predatory, and they’re willing to lose money to grow their volume,” says the industry veteran.

So, it’s likely Chewy, like Jet, is unprofitable and will be for some time if not ever. But co-founder Ryan Cohen says he is convinced that e-commerce will eventually take at least 50% of total pet product sales and that Chewy will log more than $5 billion in revenue by 2020.

Potential. That’s the price paid by PetSmart and others for what perhaps the future of ecommerce and retail will look like in a few years.

One Brand to Rule Them All

Six years after purchasing the competing online retailer for $545 million, Amazon is shuttering Quidsi, citing struggles to make the unit profitable. The decision will affect about 263 jobs in New Jersey, where the company is based, according to Bloomberg.

Quidsi is the owner of Diapers.com, Soap.com, Wag.com, BeautyBar.com, Casa.com, and YoYo.com. Its founder, Marc Lore, begrudgingly sold to Amazon amid a pricing war. He went on to found Jet.com and sold that to Walmart, where he now runs e-commerce. Read more from Bloomberg here.

It’s commonly accepted in bricks and mortar retail that to capture as much market share as possible, multi-brand formats are required. Retailers in fashion (Zara and HM) or grocery (Walmart and Tesco) operate under numerous brands whilst utilising a common backend infrastructure in product, warehousing and logistics. So, how about E-commerce?

Well, Amazon’s strategy of operating under the Amazon banner might be a hint at what’s to come. The marginal cost of software has perhaps fooled companies into a broader brand portfolio when in fact, it pays to be singularly focused on your flagship brand. After all, even if you continue to operate multiple brands, applying the 80:20 rule, it’s usually that one flagship brand that makes the vast majority of revenues/profits.

What do you think? Should you put all your resources behind one brand or spread risk and capture market share with multi-brand? Let us know in the comments.

Top 8 Metrics and KPIs Important for Ecommerce Store Owners

This is a guest post by Natalie Pavlovskaya of MageWorx, a Magento Ecommerce development company.

Data! Data! Data! I can’t make bricks without clay!” – Sir Arthur Conan Doyle

Like Sherlock Holmes who couldn’t build any theory or draw any conclusion without the sufficient amount of data, an ecommerce store owner also needs to have a solid foundation of data to better understand and successfully manage her business.

However, while data is important, the right data is essential. With so much information available from a wide array of sources: your ecommerce platform, Google Analytics and other analytical services – it’s so easy to get buried under an avalanche of reports, stats and numbers and lose track of what is really important.

In this post I’ll define 8 most important metrics and KPIs every ecommerce store owner should keep an eye on to have better results in sales, marketing and customer service.

Average Order Value (AOV)

AOV is considered a key metric by many online retailers, because the higher you can encourage AOV to be, the more income your store will get.

The basic calculation is: (Sum of Revenue Generated)/(# of Orders) = Average Order Value

So, let’s say you have 285 orders combined total $11.575; divide 11.575 by 285 and get your average order value – $40.61

The tricky point here is that Google Analytics doesn’t track all the transactions of your store, so to have the full picture of your sales you need to use the tools that will help you get 100% data (like RJMetrics).

What you can do to increase order size value.Offer free delivery on all orders over $x, bundle deals, implement suggested selling and many more.

Conversion Rate

The conversion rate tells how effective is your store at closing deals.

The basic calculation is: (Number of Sales) / (Number of Visits) = Conversion Rate

For example, your store is visited 5000 times and 200 of those visits end in a sale, you have a 4% conversion rate. But once again, be accurate with the number of missing transactions you receive by the Google Analytics.

According to the Nielsen Norman Group, the average conversion rate for eCommerce stores in 2014 is 3%. Depending on what you’re counting, a good conversion rate is usually in the 1–10% range. If you have less than 1% you might have problems.

Pulling site usability and design, pricing, product copy or developing a strong advertising campaign can help you increase conversion rates.

Bounce Rate

Bounce Rate is a percentage of visitors who leave your site immediately, probably because they didn’t find what they were looking or the website was too complicated/annoying to use.

The basic calculation is: (Number of visitors who leave immediately) / (Total number of visitors) = Bounce Rate

High bounce rate is a conversion killer. If the bounce rate for your landing pages is high (80%+) you need to fix it: attract the right visitors with the right keywords, improve usability, use good layout, provide valuable & unique content.

Shopping Cart Abandonment Rate

According to a Baymard Institute, the average shopping cart abandonment rate is 68%.

The basic calculation is: (#of people who don’t complete checkout) / (# of people who start checkout) = Shopping Cart Abandonment Rate

As an example, if 500 people add items to carts, but only 100 actually purchase them, then we have the following picture:

Purchases not completed: 500 -100 = 400

Shopping Cart Abandonment Rate: 400/500 = 80%

If your site visitors put an item in their carts but stop along the way there could be several reasons for that: something took their mind off (maybe the dog needed to go out) or they found a form too long/confusing/complicated. The first one you can’t control, the second you can.

In Google Analytics, go to the Goals->Funnel Visualization to understand where exactly visitors leave the checkout process and why it’s happening. Here’re some ideas for checkout abandonment rate improvement:

  1. Remove fields from the too long registration form
  2. Add security badges and trust seals
  3. Be transparent about shipping costs
  4. Reduce checkout steps
  5. Start abandoned cart recovery campaign

Cost per Acquisition

Cost per Acquisition is a critical marketing metric. It can tell you which campaigns can drive your sales and which will become a costly pile.

The basic calculation is: (Total Cost of Marketing Activities) / (# of Conversions) = Cost per Acquisition

In other words, CPA tells you how much you need to spend to get a paying customer. Why is it so important? Because it helps you determine the true return on investment. In the end,if a campaign brings you only clicks but no orders, it’s not successful.

You may employ different methods to bring in new customers: paid campaigns, SEO, social media ads, high-quality content.

And the question is how can you reduce Cost Per Acquisition? Try to optimize your campaigns’ settings, pause all unprofitable campaigns, fix tracking issues and use other methods of acquisition reduction.

Traffic

Where does your audience come from? Which channels produce the most customers? What social networks, keywords work best for your business? Knowing all this data will help you get the broad picture about your most high-performing and under-utilized channels.

If you’ve recently launched an online store, you should watch these metrics:

  • Traffic-sources/channels
  • Unique visitors
  • Visitors-per-source/channel
  • Bounce rate
  • Branded vs non-branded keywords

Net Profit

Net Profit is the actual amount of profit a business generates after all expenses. It tells you the profitability of your ecommerce business after taking all costs into account.

The basic calculation is: (Total Revenue) – (Total Expenses) = Net Profit

To increase Net Profit, businesses need to increase their revenue and decrease their expenses. You can lower expenses by improving the efficiency of production or making fewer purchases. You can increase revenue by attracting new clients, raising prices or vice versa making sales.

Customer Lifetime Value (LTV)

Customer Lifetime Value measures the total amount of money a customer spends in a store during his relationship with it.

Why does it matter? The main reason why is that you should be earning more from your customers than the actual cost you spend to acquire them. In other words, if it costs you $100 to acquire a customer, you should develop a plan to make this $100 off of that customer within the next year.

There are several different methods of calculating customer lifetime value. I will stick the very basic LTV equation: (Average Order Value) x (# of Repeat Sales) x (Average Retention Time)

As an example, let’s say you have 100 customers. Each of them spends on average $55.50 and 30 of those customers have come back on average 3 times a year. You expect to retain those customers for 2 years. This is what you’ve got: (55.50) x (3) x (2) = $277.50

Here are a few strategies for boosting Customer Lifetime Value:

  1. 94% of businesses believe that personalization is critical to company’s success. So use the customer’s name and recommendations to reflect previous behavior.
  2. Focus on customer service – offer free updates and lifetime assistance, be available when customers need you, provide multichannel support, analyze and improve your emails, make customer service easy.
  3. Reward loyalty – early access to sales, an exclusive first look at new products, exclusively inform about the upcoming sales, let them have their hands on your brand-new products, give away free items for every x order, reward them with bonus points and so on.
  4. Incorporate customer feedback to improve everything from design and product pages to user experience and customer service.
  5. Incorporate up-sells into your offers.
  6. Offer exclusive deals for social shoppers.
  7. Create content that educates and motivates.

Tools for Tracking Your Ecommerce Metrics and KPIs

The key of getting valuable data from all these metrics is to have access to them in the first place. Of course, there a number of tools out there, so to help you sorting out the best ones we offer you our favorite variants.

1. Google Analytics

No need to introduce Google Analytics. With this tool you can easily track most of the metrics of your site, better understand users’ behavior and monitor the effectiveness of your KPIs and campaigns.

The only “but” lies in missing transactions, no information towards Net Profit, inaccurate traffic data and issues with refunds, coupons and taxes tracking.

2. RJMetrics

RJMetrics collects all your data: web traffic analytics, data base, email marketing, customer support, ad platforms and more.

Data from multiple resources gets compiled together, so you can analyze your stats whenever you want. You can fully customize your reports and share it with your coworkers, partners or clients.

The Bottom Line

Choosing the correct KPI’s begins with clearly defining the goals of a business. What KPIs you settle on will depend on your business model.

Also, it’s important to remember what works for one business might not work for another, because usually businesses drive different objectives and different KPIs.

Don’t just track KPIs for no good reason, because you will lose track of the goals that matter. And of course choose a reliable tool to collect your data.

What KPIs do you keep an eye on for your e-commerce store and what tools do you use to track the key metrics of your site? Post your thoughts in the comments. 

Jet.com and Ecommerce Exits

Quartz has put together a nice piece on the Jet.com exit to Walmart. Most interesting is the chart of Ecommerce Exits since 2009:

I’d take a guess that none of these companies were profitable at exit and all of them would have been extremely fast growing. In exiting to the likes of Walmart, Liberty, Alibaba, Unilever, Richemont etc it’s once again underlined how difficult it is to take an ecom company public.

Read more

Dollar Shave Club

Stratechery has a nice piece on the Unilever Dollar Shave Club purchase. Noting something we also discussed with respect to FMCG:

I suspect this sort of disruption will not be a one-off: the Internet (and e-commerce) has so profoundly changed the economics of business that it is only a matter of time before other product categories are impacted, with all the second order effects that entails.

Read the piece here.

Offcourse whilst it’s a good deal for founders and investors, it does raise concern as to why another pure-play ecommerce company could not reach the public markets.

Declining Online Advertising ROI

Anyone in ecommerce – particularly those selling third party brands or running marketplaces – know the important of online advertising. Without Google Adwords or Facebook Ads, many remaining pure-play ecommerce websites would be doomed. And offline counterparts would struggle growing their online business. But ad placement has become extremely automate these days and it’s destroying any kind of ROI from online advertising. So as a online merchant, do you increase online ad spend or focus on ‘organic’ customer acquisition? (or dare I say it, offline advertising!?)

Below are five companies who provide some details about their online advertising budget: Ebay, Amazon, TripAdvisor, Expedia and Priceline. Combined, they have spent over $10 billion on online marketing in FY2015, mainly on digital ads. Their ROI of online advertising is declining: businesses need to spend more for every additional dollar of sale.

Change in advertising and sales, from 2010 to 2015 (source: SEC 10-K filings)

online ad 2

Since 2010, their online ad spending outgrew their online B2C sales. This is a general trend in e-commerce: Google’s revenues are up 156% from 2010 to 2015, while online B2C sales roughly doubled. This is clearly not sustainable.

Now one might say online advertising (and advertising in general) can always be improved. However, the marketing departments of these huge online businesses are already well versed in online ads, true insiders to the market, and even their advertising efficiency is declining. One can only imagine the dreadful returns for outsiders, companies like Verizon or Walmart. Very few companies are transparent in their ad spending, so it’s impossible to really know what’s going on in their marketing departments.

The decline in bang for every ad dollar spent is proof that the expansion of online advertising is being done to the detriment of customers, in ever less productive campaigns.

Automation

The growth of ad exchanges, demand-side platforms, and programmatic buying has removed much of the need of human intervention in the process. User tracking enables advertisers to identify in real-time who is visiting any given website, and to match the visitor with an ad, instead of relying on the website’s content to draw an approximate profile of who might be viewing the webpage.

Automation has brought down the cost of deciding whether it’s worthwhile to place an ad, and user tracking has made websites’ content less relevant. It has become economical to place ads on low-end websites for cheap, because the marginal cost of placing an ad has become so low.
This means that the growth of online advertising has happened on subprime ad space. The industry’s argument is that it’s still worth their customers money, thanks to algorithms that check everything about the user, his browsing history, the cookies on his browser, his hardware data. This is a compelling case, because the prime as space on the Internet (websites such as The Economist, the New York Times) are very expensive. However, customers paying for their ads to be displayed have practically no way of making sure their ads are being displayed to the right people.
Brand

Moreover, the industry has been pushing for more advertising budgets to be allocated to “display ads”, particularly on mobile, where Internet users click on ads much less than on desktops. The huge red flag with this practice is that customers have no means of knowing if their ad dollars are being spent efficiently. With pay-per-click, at least someone is coming to their website. With display ads, they are merely paying for exposure and such vague concepts as “brand awareness”.

It’s not even clear if a visitor actually sees a “display” ad, and the industry is trying to set up a “viewability” standard for this type of ads. Currently, it is assumed that an ad has had a “reasonable chance of having been viewed by the visitor, if at least 50% of its pixels were displayed on the visitor’s browser for at least one continuous second”. This definition alone lets you understand how murky this type of advertising actually is.

“Display” caught up with pay-per-click in 2015, and is projected to reach $32.2 billion in the US in 2016, vs $29.3 billion for PPC. But the bigger question is, has time caught up with online advertising as a whole? And if so, as a merchant, what do we do about it? Is brand the solution and future of marketing period? Share your thoughts in the comments.