Entries categorized as ‘eBiz Upsell- & Crossell’
In a previous blog I discussed a publication from WPP on some key trends and changes in 2008. One of the top trends are coined “From big to nano”. The report points to some key developments supporting this statement e.g. mini vehicles, micro credit, small media formats and devices, renting and lending as opposed to owning and You-tube type “minisodes” (small episodes).
The report continues to say that in a world of information overload, nano also means the power of visualization i.e. transforming vast amounts of information into an aesthetic essence (see screenshot below from WPPs presentation).
Now what on earth does this have to do with ecommerce? Adobe Scene7 knows!
During this week’s eCommerce Conference in Stockholm, Adobes subsidiary Scene7 were key note speakers on the Visualization topic in general and Rich Media in specific.
In a brief Interview with the Swedish edition of Internetworld (2008-05-21, IDC), Scene7’s Jeff Hunt explained how Scene7 helps e-retailers’ customers visualize physical products on-line. Hunt explained some of the key principles behind the technology and named a number of key characteristics:
- A visualization application contains nice images (many with high resolution) and a lot of information.
- It presents the product in an engaging and interactive way (zoom features etc).
- It offers options to “mix and match” i.e. combining two products in one setting etc.
When kept at a reasonable level, i.e. let us try to avoid a new boo.com, it is my view that this contributes to differentiation and margin$. Visualisation offers extended customization and personalization options that are much needed to further increase customer experience and convergence on-line.
So if both WPP and Adobe are talking about Visualisation I think we need to be open for suggestions!
Categories: eBiz Big Picture · eBiz Merchandizing · eBiz News and Trends · eBiz Upsell- & Crossell
Tagged: Online visualisation increases differentiation., Visualisation in ecommerce., Visualisation offers an online margin opportunity.
Michael E. Porter’s teachings on Competitive Advantage offer a fundamental choice for us e-business managers when adopting a strategy. We can try to do things cheaper than our competitors, or we can do things differently and stand out. Doing both is obviously great – but in reality a rare utopist condition. This is a useful starting point when looking at what e-businesses are asking on-line customers to do in their on-line configurators, how that relates to our customers’ willingness to pay and what this means in terms of internal resource allocation and level of operating expense.
As most players set out to do better things on-line for customers in terms of social networks, blogs, user interfaces, customized experience and navigation, I cannot help wondering whether or not this will affect the customers’ willingness to pay i.e. whether this is a differentiation in the eyes of the customer and a true factor of competition in the markets addressed. Being different does not equal differentiation in the context of competitive advantage. If having a highly advanced site, infrastructure and organization around on-line does not lead to a higher willingness to pay for your products then you are better off chasing a cost advantage – lean and mean.
When I look at the biggest on-line players (predominantly on-line retailers in consumer electronics) in Scandinavia there are some key takeaways. Most of the successful players lack complex navigation options let alone advanced Web 2.0 technology. Most of them have simple first page matrix type layouts with product images that recognize the value of on-line real estate and the essence of calling the customer to action. All of them will state upfront what delivery times are and product availability / stock levels. All of them offer very few config options that focus entirely on a shortlist of services up sells. All of them offer standard integrated payment methods and simple checkout.
I am not saying that e-businesses should regress to e-commerce 1.0. Nevertheless, you need to keep in mind that some of the most successful online plays in high ePen Scandinavia can grow faster than traditional offline players with similar product mix and pricing from higher net revenue levels. They boast healthy gross margins even considering stellar growth. Getting the basics right seems to work and it suggests that the marginal revenue on the table for leading online development may not always motivate the marginal cost.
In designing your online solution you need to make some bold choices. The more focused choices you make, the greater the likelihood of your customers finding it simple to make one choice only – to buy from you. A wise man from recruitment firm Korn/Ferry once gave me a piece of advice. He said: “be very focused and specific in your CV, it will ultimately make you a much more attractive candidate, even for jobs where your focused profile has little relevance”.
The truth is many players have never succeeded in creating additional willingness to pay for the option to tailor their offering, because they have never taught the market to perceive this as a unique differentiator. My recommendation is to be very careful in offering a vast array of customer choices and options and save the money spent on maintenance and ruling. My gut feel is that it will give you higher convergence, lower costs and a better customer experience.
Categories: eBiz Management · eBiz Strategy · eBiz Upsell- & Crossell
Tagged: Differentiation that leads to competitive advantages., The cost of offering choices.
At some point in the development of your site, demands on up-sell and cross-sell initiatives will become stronger and stronger. Maturity in most markets means that price competition focuses on the base products or services (that are comparable substitutes) not on the wide number of accessories, options, extras or services that are offered at and after point of sale. As we all know, focus on price on the base means very low margins on low end line of businesses and a necessity to make the margins elsewhere.
This is where the challenge starts. I have previously written about the pareto type distribution of up-sells on an option with say five choices. Two options will be chosen by the bulk of customers, one of the choices often being the default itself. Include three options and you cover at least 80% of the customers. With five options you are starting to balance between addressing the long tail of demand (special needs and choices) and the extra cost involved in people simply getting tired of choices (and abandoning the process) and the cost of administration and complexities when adding options.
Ultimately the question to be asked is whether or not the customers’ willingness-to-pay increases not with the add-ons but with the option to add them. If the combination of products and packages on your site are not viewed as a clear differentiation vs. your competition, my guess is that someone else will focus on the basic products and the most common up sells. In doing so they will shave off a good chunk of opex that you continue to carry, but they still manage to address the market with the same margin%. Worst case your competitors will also benefit from a more sensible number of clicks from consideration to purchase and see a higher convergence of leads to orders.
Unless your customer is an danced super user that sees options as a unique differentiator and must have, limit your options and invest the time and cost elsewhere.
Categories: eBiz Channel Conflict · eBiz Upsell- & Crossell
Tagged: Increasing convergence with an optimized store., Limiting store options., Optimizing configurator choices.
One of the most difficult disciplines in marketing is that of pricing and elasticity of demand. In today’s article, I wanted to give my 2 cents on cross elasticity for substitute products in a portfolio. I have seen a lot of it lately. And I am realizing how easy it is to sell your stuff online such that you, by adding aggression to your low end, actually hurt your high end and total margin$ attainment.
Picture a portfolio with products A and B below. Product A is a cheaper, sometimes negative margin bearing, traffic and units driver. B is a more high end product. Because there are numerous configurations of A and B the high end target segment of product A will consider low end configurations of product B as well as high end configs of product A. Similarly, low target segment of product B will consider high end configurations of product A as well as product B configurations. As we increase margin aggression on product B we see volumes picking up (especially in lower price bands).
Problem is we also see the volumes of product B going up making impact of low-end price aggression visible both in margin and mix shift (lower chart). For most marketeers this should be an intuitive scenario.
What complicates things is that due to channel specific ownership of product prices, I cannot influence the price on product B. Had it been possible to lower the price, we would be able to sell much more units of B and thus raising the overall velocity significantly without hurting the mix too much.
The subsequent variation of margins is high. We see the organization wobbling from guard rail to guard rail in an attempt to balance unit growth and profitability. This highlights both a cross elasticity consequence but also another example of how channel specific strategies can lead to sub optimization in the on-line channel.
Key takeaway: make sure you have full freedom to adapt the full portfolio to a new pricing level for a specific product. In this case you may need to lower prices on both A and B to actually exit promo period with an optimized margin$ attainment.
Categories: Web Analytics · eBiz Channel Conflict · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: cross elasticity and channel competition., Managing substitue products
Despite many weeks of resistance, I had to yield to team pressure and start learning about the latest buzz word in site and offer development: multivariate testing (MVT). Apparently good old split testing (A/B) is no longer good enough.
Jupiter Research state in a report from 2006 “Multivariate Testing and Site Optimization, STO-06-C06” that “Thirty-two percent of site operators in companies with $50 million or more in annual revenues have deployed site testing and optimization applications. Site operators should incorporate site testing and optimization into a usability framework that leverages traditional usability principles, customer satisfaction measurement, and Web analytics to comprehensively measure and improve Web site usability.”
We are now in 2008 and I can clearly see that MVT has gained a strong foothold in my organization. I guess the $50m kind of defines the scope of MVT as a growing set of applications for big corporates.
So what is Multivariate testing?
MVT can be described as a quantitative way to understand and influence your customers’ user experience. According to Wikipedia multivariate testing is “a process by which more than one component of a website may be tested in a live environment. It can be thought of in simple terms as numerous split tests or A/B tests performed on one page at the same time. Split tests and A/B tests are usually performed to determine the better of two content variations, multivariate testing can theoretically test the effectiveness of limitless combinations. The only limits on the number of combinations and the number of variables in a multivariate test are the amount of time it will take to get a statistically valid sample of visitors and computational power.”
The primary purposes of testing in order of importance (according to Jupiter research) are:
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Site content
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Promotions
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Step processes e.g. checkout
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Landing pages
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Site navigation
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E-mail marketing
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Performance metrics e.g. revenue, average order value
In setting up an MVT, Jupiter recommends that you:
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Create hypothesis for testing on user behavior e.g. lifestyle images connect better with target segment than product images.
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Establish multiple objectives such that not only conversion is tested but the general interaction with the site and fulfillment of KPI e.g. revenue/ user.
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Segment test participants based on the hypothesis – go narrow rather than wide.
As I start to use this new tool I will update my blog with more in depth views on this emerging field of optimization tools.
Categories: Web Analytics · eBiz Merchandizing · eBiz Payment & Checkout · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: A/B testing, merchandizing, Mulivariate testing, optimization of site, pathing and KPIs.
When designing promos in your business there are an infinite number of options. The standard considerations are balancing units, margins and average revenue per order in your chosen area of incentive. The tools to do this are many. This article will address one of these tools namely what I call “thresholding”. By thresholding I mean setting a monetary threshold as a requirement for a reward expressed as a rebate %, dollar amount or complimentary product or service e.g. buy for more than $1000 and you get 20% off.
The key driver of a thresholding play is to shift the mean of your average order value to the right on your distribution bell curve. And the success criteria is that the cumulative dollar cost of promo (e.g. 20% rebate off $1000 = $200 x the units at or above cut off) in your sample scenario is lower than the incremental margin$ of the orders that will be up-sold from below the cut off, to at or above the cut off.
Simply speaking if the incremental margin$ from the anticipated up-sells > the $ cost of the promo for those normally purchasing at or above this level. See example below for a very limited sample size:
TRU = Total Revenue per Unit ~average order value, Systems = computer
The above histogram is a very useful tool of estimating the cost of a threshold up-sell offer. By bucketing historical orders in average order value buckets, you should discover a normal distribution. From this you can build scenarios around thresholds and simply calculate the margin cost vs. your estimated upsold units to the threshold. This is not exact science but will provide with the rigour you need to prove to your management that you have made some sound assumptions and assessed the risks involved.
Good hunting!
Categories: eBiz Payment & Checkout · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: online promos, threshold offers, Threshold promos, thresholding
One of the first learnings I had in the on-line business was the trade off between offering the customer a lot of different options, and actually having the customer choose an option in the first place. The more options you throw at the average customer, the greater the likelihood of the customer continuing without an up-sell/accessory, or worst case abandoning the purchase process all together.
That said, there is some granularity to it. For some customers, e.g. the tech savvy recurring advanced customer, the absence of an option can mean the loss of a sale.
So how do you optimize the option range vs. up-sell conversion trade off?
A friend of mine who used to head up a movie theater operation explained to me that no matter how they priced popcorn, 80% of visitors chose the mid sized option (out of small, medium and large) and 75% always chose some kind of bundled offer with soda (note this is in Europe, in the U.S. I doubt anyone choses anything smaller than XXL) .
What was even more interesting was that margins in the movie distribution business are squeezed by the immense bargaining powers of Hollywood. So most of his margin $ were generated not by George Clooney but by fried corn, soda and candy. The situation is similar in the computer industry where the systems themselves for the most part generate little margin.
So how does this relate to accessories and up-selling in an on-line store, configurator or basket? For starters the Pareto rule applies here. My experience tells me that two to three choices out of five or more published options will capture 60-95% of the users that chose an option. These options are all you need (see below an example from Amazon default up-sells for a Garmin Nüvi). Adding more options than this will in most cases hurt your conversion of this option all together even though may sell more types of up-sells.
My advice is to on a monthly basis keep track of the number of up-sell options per assessory/upsell and your total up-sell options so to keep check out process at a minimum with conversion and margin dollar at a maximum. This will ultimately be a test of how good you are at saying no to the various product managers in your e-business.
Categories: eBiz Management · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: amazon upsells., assessories sales, cross sell, Grow your margin$ by limiting your upsell options, margin optimization online, margin$ per box.
