Easier Ecommerce : Sell Anything Online

by Peter Prestipino

There are millions of active websites today, and many of them are enjoying success selling products and services online. One of the many great things about being an e-commerce merchant is that products can be sold for much less on the Web than a comparable storefront in the brick-and-mortar world. With powerful e-commerce software solutions, a good product, the motivation to make it happen and some best practices, anyone can achieve success on the Web.

Shoppers Need Product Information:
 
Chances are good that you have purchased something, at some point from a Web storefront. And it’s a good bet that the merchant had supporting or descriptive information about the product, as very few online shoppers have enough confidence in e-commerce to buy something without plenty of detailed information. Yet, one of the most significant mistakes that many merchants make is not providing sufficient information about their products.

The most successful merchants employ copywriters to produce these essential product descriptions. While writing is a creative process, many merchants fail to realize that good copy can be based on empirical data. Visitors arrive at your site using keywords and key phrases – important information that will give you  a head start in discovering, over time, what terminology is used to locate your site. That, in turn provides great clues as to what copy should be included in your product information.

Shoppers Expect Availability and Support:

Too many merchants hide behind their virtual counters. Those who provide support features such as live chat, contact forms and even toll-free or local phone numbers experience exponentially higher conversion rates than those who make it difficult for users to contact. For example, a sale might rely on a user knowing about the quality of the product, when it will be delivered or if it came with a guarantee? And while much of this information should be included on the website, many users still want to ask questions.

Making an effort to not only initiate contact but keep the lines of communication open will help establish more than just immediate sales – increased average order value and higher lifetime value for each customer will follow. While making sure that contact forms and phone numbers are working properly is a great first step, establishing a client newsletter or even a weblog can add tremendous value. Both serve several valuable purposes – the appearance of high availability and support, an increase the depth of product information and an aura of expertise are just a few.

Shoppers Need Confidence:

It’s the responsibility of merchants to instill confidence in consumers; not just through quality products (and their descriptions) but also in the business itself. According to research from VeriSign Secured Seal Research, 65 percent of online shoppers buy only from sites they know and trust.

There are many Web solutions that can help you achieve this credibility, including third-party solutions provided by firms like BuySafe, HackerSafe and ValidatedSite. While these solutions have been shown to dramatically increase conversion rates, even small steps such as creating a formal guestbook or testimonials page will go a long way towards giving users confidence in your business and products. Some merchants are even administering bulletin boards so that consumers can interact with other consumers. There’s no faster way to build confidence than by word-of mouth and by enabling consumers with the tools to share the good news about you and your products.

The Web provides many powerful ways to market and sell products online. With the right know-how and the right tools, the possibilities are endless. Like anything else, what you put into it reflects what you can expect in return. And with the countless options the Web provides, merchants must provide valuable tools and information, and instill the utmost confidence in their consumers to achieve online success.

PPC Accountability

Is Tracking ROI Actually Hurting Your Business?
By Rafe VanDenBerg

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For e-commerce companies and Internet retailers, measuring and managing return-on-investment (ROI) seems to be the Holy Grail of pay-per-click (PPC) accountability. Everyone seems to be working toward the day when they can measure and adjust their PPC campaigns by the actual  profit-contribution-per-dollar-spent. After all, it just makes good business sense, right?

Not necessarily. While this may sound like blasphemy to some, for many e-commerce companies and Internet retailers, measuring and managing PPC campaigns by ROI could actually be hurting their growth and profits.


PPC and New Customers

Analyze the PPC campaigns of a typical Internet retailer and you'll often find these campaigns are primarily producing new customers and very little repeat customer activity.

Intuitively, this makes perfect sense. Many new customers will initially find the retailer by conducting a search then clicking on a PPC listing. Less likely, however, is that these customers will follow this same search-to-PPC path when making subsequent visits or purchases. These customers are already familiar with the retailer and know what they have to offer. And, as existing customers they are probably receiving regular follow-up communications from the retailer. So, for subsequent purchases there’s little need for these customers to use a PPC listing.

This new customer distinction is important because it can radically change the profitability picture associated with PPC — particularly for a multi-line, multi-channel Internet retailer. When PPC campaigns are generating a large percentage of new customers, it becomes much more appropriate to view PPC as a customer acquisition mechanism, rather than a transactional tool. And when the perspective changes to customer acquisition, the concept of customer lifetime value (LTV) must come into the picture. Put simply, LTV is the net-profit generated over the period of time a customer remains active.

Any multi-line Internet retailer should know that a new customer is often worth far more than the revenue and profits associated with their initial transactions. For some online sellers, the initial transactions are just the tip of the iceberg as those customers return again and again, over a longer period of time.


LTV and PPC Profitability

When LTV is considered, it’s easy to see how a new customer acquired through PPC could be worth much more than just the near-term revenue associated with their initial purchases. It should also be easier to see how an Internet retailer’s growth and profits could be negatively affected by PPC decisions based on near term ROI measurements.

Consider the multi-line retailer who was managing a large number of PPC campaigns around specific products and product lines. They were measuring the ROI of each campaign and making adjustments to achieve their targeted levels of return. Sounds good so far, right? Through in-depth analysis, we found that over 96 percent of the orders attributed to these campaigns were to new customers. For this company, PPC was indeed a very effective customer-acquisition tool.

However, an LTV analysis revealed that the value of these customers over a period of just six months was 45% greater than the nearterm transactional values reflected in the ROI measurements. What’s wrong with that, you might ask? Doesn’t that just mean that this company’s PPC campaigns were even more profitable than they thought?

At first glance, this under-valuing might actually seem like a good thing. But remember, this company was adjusting their PPC campaigns based on the transactional ROI targets and not the true LTV of the customers being acquired. When a campaign wasn’t meeting those ROI targets, the company would reduce their bids, add negative qualifiers to their ads, pause certain keywords, and in some cases shut off the campaign altogether.

In reality, their ROI measurements were leading them to make near-term decisions that reduced their growth, profits, and competitiveness. Hundreds of new customers who would produce significant profits in the future (taking into account their LTV) were, in effect, being turned away on the basis of their immediate transactional values attributed to PPC.

Now, had this company considered the true LTV of the new customers, their PPC management decisions would have been very different. In many cases, bids would have been increased, not lowered. Click-through ad-response would have been opened up even further and not stifled. Keywords would have been added, not paused. Entire campaigns would have been kept alive and expanded, rather than being shut down or killed.

By considering LTV and the longer-term ramifications of their actions, this company could actually grow its reach, customer base, and market share instead of giving up ground and shrinking its presence in the competitive environment.


Taking it a Step Further

Once you embrace the concept of taking LTV into consideration, the next step is to embrace the differences in LTV at a more granular level. The simple truth is that there exists a unique group of individuals driving each PPC keyword, ad group or campaign. And these unique groups of people — or segments — can ultimately have very different needs and purchasing behaviors.

So, in the same way that different PPC campaigns, ad groups, and keywords can produce different levels of ROI, they can also produce new customers with very different lifetime values.

Back to our example.

Through further analysis, we found that for this Internet retailer, customers acquired through certain product-specific campaigns were worth far more than the typical customer. One campaign produced customers with LTVs over 400 percent higher than average. At the same time, however, the short-term ROI for this particular campaign was actually lower than that of other campaigns. With a “manage-to-ROI” mindset, this campaign would actually be at risk — even though it was acquiring customers worth four times the normal LTV.

By taking LTV to this more granular level, you’ll often find campaigns, ad groups and keywords where the most profitable course of action is to go negative on short-term ROI. That’s right — when the value of the customers being acquired is great enough, it’s often much more profitable in the long term to actually lose money in the near term.

Now this concept is nothing new to seasoned direct-marketing professionals. For a century or more, direct marketers have been very willing to break even or lose money on the first transactions to acquire the customer, knowing that subsequent sales to that customer will make their initial investment pay off in a big way.


Putting it into Practice

As powerful as this can be, it’s sometimes a challenge to put it into practice. Certainly, it requires a bit of in-depth analysis and spreadsheet whipping. There are also financial implications to be factored. And, in many organizations it requires some creativity to deal with the closely-held beliefs and mindsets about ROI and accountability.

Obviously, data analysis is much easier if you’re capturing campaign-level information and carrying it through to your backend reporting systems. It’s also very helpful to have been running PPC campaigns for a while, so that you have some history to examine. But even if you don’t have all of this, don’t let that stop you. There are effective workarounds, and you can do this if you really try.

For example, you can use data from your backend systems to determine customer LTV by the products contained in the first orders — i.e. the acquisition products. Then, you can use those values to manage specific product or product-line PPC campaigns, with some level of certainty that those campaigns will acquire fairly similar customers with similar purchasing behaviors.

The “lifetime” in lifetime value is a bit of a misnomer, because the timeframe you utilize in practice will largely depend on your financial situation. If you’re cash-strapped and don't have a war chest to lean on, you’ll want to use a much shorter timeframe than the true, active life of your customers. Some companies are fine with breaking even at year two, while other companies need their investment back much sooner. Each situation is different, so you have to determine for yourself just how long you can wait to get your initial investment back and starting making a profit from the customers you acquire.

Promoting the use of LTV in some organizations can be tough when there are certain entrenched mindsets. But one of the biggest differences between ROI as it’s generally utilized and LTV as we’re discussing here, is the element of time. So it's often very helpful to position LTV as a long-term ROI.


The Competitive Advantage

In case you’re wondering whether all of this is even worth the effort, consider for a moment the competitive ramifications. PPC is one of the most competitive advertising environments imaginable — and it’s getting tougher with each passing day.

What if you knew something your competitors didn’t? For example, that the value of the resulting customers meant that certain clicks were worth $3 more than what your competitors thought they were worth? Do you think you could outmaneuver those competitors with that kind of information? You bet you could.

And if you’re still not convinced, turn the tables and consider this: What if your competitors knew something that you didn’t?

About The Author: Rafe VanDenBerg is the founder of eCommerceXcellerator.com, a suite of online tools, training resources, and services specifically-designed to help e-commerce companies and Internet retailers produce more growth and profits. He can be contacted at www.eCommerceXcellerator.com.

The Risk Discount

How the Perception of Risk Costs e-Retailers Money Every Day

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When consumers feel that the Internet is not a safe place to do business, they become anxious. Regardless of whether this fear is warranted, the effect on online retailers is daunting. Needless to say, consumer anxiety creates a complicated challenge for online merchants, especially Internet retailers without national, trusted brands. This lack of consumer confidence has created a phenomenon in online retailing – The Risk Discount. Simply put, the Risk Discount affirms that buyers who perceive risk when making a purchase will discount the price they are willing to pay.

A great deal of evidence—ranging from academic research to anecdotal evidence and buySAFE Merchant experiences supports this conclusion. A June 2005 report issued by the investment firm of Piper Jaffray concluded that “respected branded sellers are pulling the large numbers of fraud-averse online shoppers away” from lesser known sellers, and that remaining buyers “are applying what amounts to a ‘fraud discount’” and forcing prices lower(1).  In an increasingly anxious online marketplace, success for Internet merchants depends more and more on how well they counter the Risk Discount.

Risk . . . and the Perception of Risk

The majority of online merchants take steps to represent themselves in a credible and trustworthy fashion. However, some fraudulent sellers have created scams worthy of prominent media attention. While data security is a threat, poor merchant performance consistently and overwhelmingly represents the greatest risk to internet users. In fact, the National Consumer League’s 2006 Top 10 Internet Scam Trends reported that merchant non-performance - more specifically, non-delivery or misrepresentation of goods - made up 67% of all reported Internet scams as reported(2). Clearly, online buyers’ fear of being scammed and merchant non-performance cost legitimate merchants billions of dollars in lost sales annually. This perceived risk has caused the trustworthiness of merchant to surpass all other factors – even price – as the most important factor in a buyer’s decision to make a purchase online.

Buyers perceive risk in a transaction because they have limited knowledge of the seller’s ability and willingness to perform. In other words, buyers don’t know as much about online merchants as they need to know in order to feel comfortable. Fundamentally, a merchant must reduce or even eliminate the perception of risk before, during, and after the shopping experience. In an eCommerce environment, addressing risk at every step of the buying process is essential to distinguishing trustworthy, reliable merchants.

The Relationship Between Risk and Return in Online Shopping

A significant body of literature in the field of economics discusses the relationship between risk and return (Sharpe, Miller & Modigliani, etc.). As any investor will tell you, a greater risk is attractive only if it offers a greater return. Studies that examine the relationship between risk and pricing in online transactions have consistently found a similar relationship. Online shoppers seek to compensate for greater risk by decreasing the price they will pay.

you can see the Risk Discount principle at work by doing a simple search with almost any major comparison shopping engine. A recent search for the Sony Cyber-Shot DSC T30 Digital Camera on Shopzilla vividly illustrates the difference in average prices for well-known retailers and lesser-known merchants. In this example, the average price of the camera from a well-known e-retailer was $69 – or 17.6% - more than that of a lesser-know online merchant. This clearly shows that lesser known retailers must sell their items at a significantly lower price just to compete with larger online brands.

While the Risk Discount phenomenon leads buyers to discount the prices they are willing to pay, the Trust Premium is the complete opposite. Buyers who discount the prices they are willing to pay in high-risk transactions will pay a premium for low-risk transactions. That is why buyers are willing to pay well-known online retailers more for an identical product than they are willing to pay a lesser-known Internet merchant. This is called the “Trust Premium” and it is the inverse of the Risk Discount. For small to mid-sized online merchants, turning the Risk Discount into a Trust Premium has never been more critical to profitability.

Eliminating the Risk Discount, and Earning a Trust PremiumMany shoppers find security in well-known brands. They will shop—and buy—in the online stores of national brands but will not buy from smaller online retailers because they feel that they do not know them, that they do not know what to expect from them, or that they have “never heard of them.”

For most retailers, building or buying a national brand name is prohibitively expensive. Therefore, Internet retailers need an alternative strategy. Perhaps the most effective strategy is to have an objective, trusted third-party institution endorse the retailer’s business with both its own trusted brand as well as its financial resources. The third-party’s endorsement and financial guarantees can enable online merchants to compete more effectively with established, well-branded, online retailers. Shoppers who have come to respect and trust the third party’s brand will know that they can trust the retailers who are permitted to use it.

buySAFE - A Proven Solution to the Risk DiscountThis is the idea behind buySAFE; the company I founded while earning my MBA at The Wharton School, University of Pennsylvania. I wanted to create a solution that would clearly distinguish the best online merchants – regardless of size – and provide a purchase guarantee to convert the most risk-averse shoppers. In other words, I wanted to provide a solution that would help small to mid-sized merchants turn the Risk Discount into a Trust Premium. That solution is buySAFE.

In over 12 million bonded transactions to date, buySAFE has been proven to increase buyer confidence. We accomplish this by providing our certified merchants with the buySAFE Seal for display on their website and by enabling shoppers to guarantee their purchase with a bond guarantee from buySAFE’s surety partners - Liberty Mutual®, Travelers®, and ACE USA®. In so doing, buySAFE also benefits merchants because shoppers are more likely to buy when they have trust and confidence that the merchant will perform as promised. With increased buyer confidence, buySAFE Merchants typically enjoy the Trust Premium - higher website conversion, more repeat buyers and a better ROI on all their marketing dollars.

About the Author
Steven L. Woda is buySAFE’s founder and Chairman. Steve continues to lead the strategic development of buySAFE to fulfill the vision of making every online transaction safe, reliable, and virtually risk-free.

Footnotes:
1 Piper Jaffray Report – June 27, 2005
2 National Consumer League Fraud Center’s 2006 Top 10 Internet Scams (http://fraud.org/stats/2006/internet.pdf)
3 Online Shopper Survey – August, 20064 Average Online Price Comparison Study – August 28, 2006
4 Average Online Price Comparison Study – August 28, 2006