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Ecommerce 101: What You Always Wanted to Know But Were Afraid to Ask

May 13, 2014

I’d like to discuss several key drivers of an ecommerce store as well as recommend a few areas for growing online retailers where a focused effort will positively impact the ecommerce conversion optimization.

You are a thriving and successful US retailer. You have a great range of products and services, sold directly and through various distribution channels, your products quality is great, your customers give you wonderful reviews and praise your products in social media and various other online channels. You’ve been in business for a number of years and are now looking to expand internationally.

You also are selling online. Perhaps, your site was made a few years ago by a friend or a small local agency, or, perhaps, you have setup your online shop at a popular cloud-based platforms. You may even have invested significantly to build a custom online shop that has since not been updated much. Your sales online are modestly growing, but nothing like your other channels – your shows and expos still typically generate much more business than your periodic attempts to invest in some kind of an online promotion. You have been a target of an endless line of ecommerce consultants, who promise an online Eldorado in exchange of fat fees and major budgets to be invested in SEO, Google AdWords, banner ads, or building a multi-million social networks fan base. You tried selling through Amazon, and it worked – but you have so many questions on how to maintain your brand identity and to connect to your loyal customer base – directly.

And, you are frustrated. You clearly understand that ecommerce is a future of retail, you read all these news about your competitors doing great online; your website and online shop, while inexpensive to maintain, are very costly to adjust or modify, and you really don’t have an in-house expertise to understand all the bells and whistles of ecommerce technology and marketing gimmicks. And so, you are starting to look around at what to do next, being ready to commit a significant investment to upgrading your online sales channel but careful not to waste your hard-earned profits.

The good news is that you are not alone. In my conversations with hundreds of successful retailers, again and again I hear the same concerns and frustrations, regardless on an industry vertical. There are misconceptions and myths, and sometimes, outright unfamiliarity with the elementary concepts. So I’d like to clarify some of the basics of ecommerce and suggest a few steps for you to hopefully feel more confident and competent in your ecommerce decision making.

Let’s make a few things clear. Your online sales volume is a product of three key components:

  • Your online store visitor total traffic in number of visits per time period;
  • The conversion percentage rate (total buyers divided by total visitors for the same time period);
  • The store’s average order value (AOV) in US Dollars for that same time period.

Looks simple and obvious, right? But the key here is to understand how the traffic, conversion rate, and average order can specifically be managed, through which activities.

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Visitor traffic: measured by its source, relevancy, and the total volume. The key to getting repeat relevant visits to your site from multiple sources is your site’s search engine ranking / popularity, which, in turn is determined by your site’s content. The site that has high quality content and that is structured in a simple and straight-forward way, the site that has a large number of back-links pointing at it from other authoritative sites, the site that has a large and loyal online audience talking about it would benefit from high ranking and a persistent flow of traffic. Can you buy traffic? Sure! Should you do it? It depends; and the devil is in details – a strong ecommerce channel always would benefit from an additional boost of traffic fueled by specific merchandising promotional campaigns. The key to remember is that such campaigns would rarely result in a repeat sustainable traffic and are only good for reaching specific short-term goals. Overall, your traffic is driven by your site optimization efforts, most of which fall into the Search Engine Optimization (SEO) realm.

Conversion rate %: the holy grail of any ecommerce site. Simply put a share of all your site’s visits that result in sales. Rumors have it that some of your competition is having a feast – conversion rates of 20-30%! One of some very experienced retailers, a large clothing accessories company founder told me recently that his conversion rate was a stunning 80%! Clearly, a mistake on his behalf. Yes, these rates vary by an industry vertical and by your traffic sources, but, on average, if your site has a 5% or higher conversion rate, you are doing REALLY well. If you are below 2%, there are clearly opportunities for improvement. What impacts a conversion rate? A whole swarm of factors, starting from how relevant your visitor traffic is and where it comes from. Simple search engine search result – originated visits tend to have a lower conversion rate than those visits that originate from your re-targeting campaigns, for example. But the ecommerce store itself impacts your conversions much higher than just your audience’ relevancy. The visitors normally flow through an online sales funnel, starting from browsing, then proceeding to shopping and ending in making a purchase.

The conversion funnel is a separate topic – I would just mention that there are certain features of your site that either take your visitors to the next step in a shopping process or make them drop from it. These features vary not just by the stage of a sales funnel, but also by your industry vertical. Usability engineering is a key in making sure that your site caters to your target audience and that people are guided through their online shopping process, just as being led by a competent salesperson through a physical store. And so, when you would look at a fashion boutique online shop, you would most likely see large vibrant images of people wearing that company’s products; if you would open an industrial spare parts reseller store, you probably would be presented with a very detailed searchable parts catalog. So when the next time someone mentions a conversation rate to you, ask them, how they calculate it and what segment of their online shoppers that rate relates to, and what types of products they sell.

Average Order Value (AOV): is impacted by a number of factors, most of which are similar to your brick and mortar physical stores; your product pricing, your merchandising and promotional campaigns, special discounting, loyalty programs, up-sell and cross-sell recommendations influence an AOV significantly. The online channel is unique in that you are able to have a very sophisticated insight into your shoppers’ behavior online, its patterns and their profiles, therefore enabling you to make the very targeted special offers and deals to individuals who are much more likely to make a higher value purchase or make additional and repeat purchases.

The static snapshot of the above factors resulting in your total online sales for a time period has a very limited value. The true insights come from observing and influencing these KPI’s dynamically, analyzing their change over time. Think of it as looking at a balance sheet of a company at a given date vs. analyzing the changes in it over time – the latter gives you a very valuable metrics on a changing health of a business.

Of course, you can’t manage things that you don’t measure – and to an ecommerce channel this rule applies even more so than to other aspects of a business.

  1. Start measuring. If you don’t have any kind of metrics or reporting on the dynamics of how your company site and an online store are doing, set up the online analytics immediately – if you operate in the dark, you won’t be able to make the right decisions. Google Analytics would be an obvious choice – free and simple tool to get started with. It literally takes a few minutes to make a basic setup and, with just a couple of hours of relevant research, you can set up quite a sophisticated system of tracking such things as who is coming to your site and from where, how they navigate around your site, which content is more popular and effective in keeping people engaged, what devices people use to access your site, and what proportion of visitors come from referring sites, search engines, social media, ad campaigns, or direct. You may already have a Google Analytics tool setup – do take a very close look at the data it provides and understand your sites’ key metrics. Tracking the changes in this data is key to understanding what activities make a bigger impact; so look at it often and drill into detail.
  2. Invest in a high quality SEO audit and a usability (UX) audit of your online store. If done correctly, this work produces a very specific and clear roadmap of improvements that your site needs in order to impact its traffic and conversions. While SEO-driven activities would impact the volume and relevancy of your visitor traffic, a UX audit typically addresses your site’s convenience, attractiveness, ease of use, look and feel of your site for your target user audience.
  3. Which technology platform are you using? If you have a custom-built site, or a site that was built using a basic shopping cart plug-in as an add-on to your company’s site, consider learning more about and investing in a more robust and scalable ecommerce platform for your online business. The ecommerce industry is undergoing a tremendous change, and no one single technology platform answers 100% of retailers’ needs for any vertical, there are advantages of use and weaknesses in each of them, and a landscape of new players and leaders on this market is ever-changing. The key for you is not to be focused or sold on a specific technology or a platform, technology serves only as a tool and must be tailored and customized to serve your specific objectives in addressing your online audience.
  4. Your sites’ responsiveness is a must: a site is called responsive when it adjusts its front-end layout and content based on a device on which it is opened. Long gone are days when only a small fraction of your visitor traffic came from tablet PC’s and smartphones. In some industry verticals, we see one-third to one-fourth of all online visits coming from devices other than a desktop PC. Responsiveness is a major factor in a conversion rate of your site and cannot simply be ignored. There are typically two ways to go about making your site responsive. You can either use one of many available responsive front-end site templates available for your ecommerce platform (there are literally thousands of them for most of ecommerce platforms and shopping carts) or you can invest in developing your very own custom responsive interface design and programming. A number of factors are at play in this area – starting from what target markets you serve to how important it is to differentiate your brand through a unique user interface.
  5. Omni-channel: it is important to think of all systems supporting your sales distribution systems as a single interconnected system. In essence, omni-channel is an approach to sales when you seek to provide your customers with a seamless shopping experience – whether the customer is shopping online or via a mobile device, by telephone or in a physical store of yours. If your systems work in isolation, you are not able to track your customer behavior in full, for instance, to see which one of your customers checked out your products in a physical store and then purchased them online or see all products they purchased through all channels. Making it possible to purchase online and have a product received in a physical store, or to return a product purchased online in a physical store these days is a norm rather than an innovation, and if you are not there yet, start thinking about such an Omni-channel approach now. The simplest way to get started is to first review how your customer information flows through your systems and databases and how you identify your customers. Define a single customer profile and have it propagate through all systems to eventually be able to draw their purchasing history and behavior patterns from all sources available.
  6. International: if you already are making international shipments of your product based on the online orders through your ecommerce store, you are most likely facing issues related to localizing / translating your online store to various languages of the markets your serve, multi-currency and multi-warehouse management issues, transaction security and fraud-prevention concerns, shipping and returns policies and costs, to mention a few. Depending on your current online store setup, you may want to consider a uniform approach and make a single store serving every market your serve, or you may develop separate front-ends, in essence, separate store-fronts for each of the major markets you serve internationally – all connected to a single back-end database and an order management system (OMS). Your chosen ecommerce technology platform will at large determine your approach and potential solutions to the issues mentioned above. While choosing a platform, make sure you consider international business aspects, even if you are not yet selling large volumes of your products and services on other markets.

The point I would like to make is that the technology and marketing have to be fused well in your online channel. If your online store is not balanced either way and one of the drivers of your online sales volume is not addressed, then, no matter how effective you would be optimizing the other elements, your success is going to be limited. Think of your online audience, their likes and preferences, the image of the brand you convey to them, look at their touch points with you brands, just as you would do it offline. Ultimately, you’re selling not just products or services, so it’s essential that your online store is built in a way that helps to sell an experience, a meaning, an association, and, in some cases, a lifestyle.

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