USING SHIPPING DISCOUNTS TO INCREASE CONVERSIONS

Why is it that small retailers are so afraid of eating shipping costs? Reducing shipping costs can dramatically increase conversions - meaning it costs you less to acquire each order. Shipping discounts may decrease your net margin per order - but you'll likely get significantly more orders.

I've seen cases where retailers gain a full point on conversion rates by offering free shipping! (Meaning out of every 100 shoppers, 1 more places an order)

Why is shipping cost such a big deal?
Shipping cost is becoming an increasingly important factor in shoppers decisions on where to spend their money. Here's why:

• You're competing with local stores for the order. More than half of internet shoppers indicated that they frequently use the internet to research products they want to buy - then purchase locally at a brick-and-mortar store. You have to compete with those local retailers for the shoppers business - and one area they consistently win is that there are no added costs to the order.

• As cost of oil goes up, so do shipping costs. Internet shoppers are becoming increasingly more weary of high shipping costs. A shopper looking to make a $50 purchase will likely be concerned from the beginning of their shopping experience that shipping costs will destroy any value proposition they find.

• Shoppers now have more tools available to easily compare the entire offer. The online ease of shopping a half dozen stores for the same product with just a few clicks has made it easy for shoppers to compare retailers based on the entire offer - product cost, shipping and taxes. You can easily lose business to a competitor whose price is higher - but eliminates shipping cost.

• As the economy flags, shoppers are more likely to pinch pennies, and shop more aggressively for the best deal.

• Shoppers have always loved a "great deal", and they always will. Free shipping offers provide additional incentive to complete an order.
  

What types of retailers will see the biggest gains by offering free (or discounted) shipping?

• Online retailers competing heavily with brick-and-mortar stores. These online retailers must always be offering a value proposition that beats their brick-and-mortar counterparts, without adding any additional negatives to the deal.

• Online retailers competing heavily on price point. If you get much of your business by offering a better price point than your competition, free shipping can play a big role in sealing the deal.

• Online retailers selling generally inexpensive items. Nobody wants to purchase a $10 item and then be jolted in checkout with an $8 shipping tab. Especially if the items are small and inexpensive to ship through the post office.
  

Should you set minimum order terms for free shipping?

Generally speaking, it is wise to set a minimum order amount for free shipping. This will provide the value, with an incentive to add that one-more-item to the order.

It's as important to understand the dynamics of your average order price points, as it is to weigh the impact to your bottom line when determining where to set the minimum order cutoff.

One of the best ways to get an idea where this magic number should be is to run a report on the size of your average ticket. Then get a count of orders under your average ticket, and a count of orders over your average ticket. If you get more orders under your average ticket, then set the shipping discount at right around your average ticket value. If you get more orders over your average ticket, set the minimum cutoff 10-15% over your average ticket value.

If the goal is both to increase conversions and increase average order size, then you'll generally want to set the minimum cutoff above your average ticket. But be careful not to set it too far above, or the positive impact on conversions will be very limited.


How much shipping cost should you discount?

How much shipping cost you should discount is different for every retailer.

If you have decent enough gross margins, and can afford to discount shipping entirely, it will probably provide you the strongest conversion benefit to do so.

Some simple math you can do to find out how much you can afford to discount:

• Get your most current month's traffic and sales report and figure out what your conversion rate was.

• Increase that conversion rate by .5% (projecting that will be your increase in conversions because of your free shipping offer).

• Based on the number of visitors you had in that month, multiply it by the increased conversion rate to figure out how many orders you might project with the shipping offer.

• Subtract your actual order count from that projected order count. Then multiply that number by the amount of your average ticket. This will give you a projected increase in revenue.

• Now run a report on how much the average shipping cost was in the previous month for orders that exceeded the minimum cutoff point for your proposed free shipping offer.

If the value proposition of offering free shipping - the increased conversions versus shipping cost absorbed isn't workable, you might then calculate how much shipping cost you'd be absorbing if you offered $5 flat rate shipping, or some other variation on the theme.

If most of the orders placed on your site select typical ground shipping (versus more expensive overnight or 2nd day air options), then you should also consider making the offer apply ONLY to ground shipping options, so you limit your cost exposure.

"PAIN-PER-CLICK" - PUTTING THE "PAY" INTO THE CLICK

Easy access to Pay-Per-Click (PPC) marketing has made PPC the most (mis) used online marketing tactic for small retailers. Tips and advice on how to put the pay back into the click.

Rule #1: PPC is Lazy Man's Marketing

PPC can be effective at driving some sales - and in some cases, significant sales. But, compared to other creative marketing (like good strategic partnerships), PPC is expensive. The returns on PPC campaigns for most e-retailers is much lower than that of good creative marketing.

Too many small retailers rely on PPC as a primary strategy, because it's just so damn easy and requires little thought or planning to get started.

Rule #2: Have a good PPC Strategy

There's nothing wrong with using PPC - we use it for most of our clients in some frequency. However, you'll get the best returns from it if you have a specific strategy.

In most cases, we find the best returns on pay-per-click when:

• We use it to research for organic search optimization, finding out which keywords/phrases have the highest conversions to sales, so we know what to spend our optimization efforts toward.

• We use it to buy very specific keywords/phrases that have high returns, but we're having a difficult time getting ranked organically for.

• Special holiday promotions where there isn't time for organic search rankings to "catch up" with the merchandising for that holiday promotion.

• We want to test market new products - we can quickly and effectively test conversion results using PPC without a major investment, or serious planning.

Rule #3: Semantics are everything - be specific!

General keywords are expensive to buy, an typically have very poor conversions to sale.

For example, if you sell chocolate, you might choose to pursue the keyword "chocolate".

As I'm writing this article, the cost to be in the top 5 positions for the word "chocolate" using Google's Adwords is around $1.40 PER CLICK! If you don't convert at least 5-10% of those clicks to orders, you're going to lose your ass on that one. And chances are you won't convert nearly as high as with a more specific phrase.

The problem is that "chocolate" is very general. Not only are more (amateur) marketers pursuing it and driving the bid price up, a searcher might use that keyword when their motivation is actually chocolate recipes, or information about how chocolate is made...or even the "LG Chocolate" cell phone! So maybe they get curious and click your link - but they're not serious about buying.

On the other hand, the keyphrase "artisan dark chocolate" is about $.50 per click, and indicates more clearly that the searcher is looking for chocolates presumably to buy.

Pick your keywords carefully. Both Yahoo! Search Marketing and Google's Adwords programs have keyword research tools that let you type in keywords and estimate clicks and costs you should anticipate. Use these tools.


Rule #4: You don't have to be #1 to be #1

A common beginner's mistake is to assume that they need to be the #1 ranked sponsored search ad. This is a misconception, and will lead to drastic over-spending.

If you have a good ad, and your merchandising is competitive, you'll do just fine being in the number 3, or even fifth ranked spot.


Rule #5: It's an advertisement. Write an attractive offer.

While sponsored search is very limiting in terms of ad copy, that doesn't mean you can't write an effective ad. Consider what the shopper has just searched for, and write your ad copy to appeal to the need they've just expressed.

Remember that your ad is going to be displayed next to your competitors ads, so indicate any special offers you have that are relevant - like "Free shipping over $50".

Be careful though to be up-front in your ad. If "thorlo socks" are $8 per pair...but only sold in packs of 6 - make sure you indicate that. You don't want shoppers clicking through (costing you money), only to discover that the terms of the sale are unacceptable to them.

Don't get lazy and write a single ad for significant variations on a keyphrase. For example, one ad is probably not sufficient for the keyphrases "mens golf shirts", "golf shirts", and "womens golf shirts" - each of those should have its own ad copy. The "Golf shirts" ad should probably specify that you have both mens and womens. The "mens golf shirts" variation might best mention popular mens brands in the ad, etc.


Rule #6: Track EVERYTHING

The major PPC venues (Google, Yahoo, MSN) offer conversion tracking. Implement it. Right away. If you haven't implemented conversion tracking and you're still here reading this...shew. You're dismissed. Go implement it now, then come back and read the rest of this!

To implement PPC with good returns, you need to be tracking the number of clicks, conversions and cost per conversion for each keyphrase variation you're bidding on. Period.


Rule #7: It's about conversions, not quantity

It doesn't matter how many clicks you get - only how much each order costs you. Know your maximum acceptable order acquisition cost, and stick to it.

If a keyphrase is performing close to your acceptable range, try adjusting the maximum bid for it down slightly. You might get less clicks, but you'll get the orders at a price your margins can support.

Don't hold onto a keyphrase just because it drives significant traffic. If that traffic isn't turning into the appropriate amount of revenue, optimize it or cut it off.


Rule #8: One Hundred Clicks to Judgment Day

It's easy to get spooked by a keyphrase when you watch it's click-cost tally start incrementing quickly, without any orders. You might just cut off a keyphrase prematurely that would have actually performed well in the long run.

It's a law of averages game, based on statistical data. Any keyphrase that's received less than 100 clicks hasn't given you a big enough statistical data base to work accurately from. Let it get 100 clicks down before you make any big decisions.


Rule #9: Split your buys into at least 2 campaigns

This one isn't so much a rule as it is a tip. I like to split my ad groups up into 2 campaigns (sometimes more).

The first campaign is "New Keywords" - it's all the new keyword/phrase ideas I've come up with that are un-tested. I set the maximum daily budget on that campaign down pretty low - I don't know how well they're going to perform yet, so I don't want them breaking the bank.

The second campaign is "High ROI Keywords" - it's where I move all of the keywords or ad groups that I've tracked for a while and know that they consistently deliver high returns. This campaign has no maximum daily budget, because I can be confident that whatever amount was spent has provided a strong return. I'm always happy to give away a buck if I know I'm getting two bucks back.

I watch my campaigns closely and shift keywords between campaigns as appropriate, based on the conversion tracking.

NO MARKETING PLAN IS A PLAN TO FAIL

"We're going to get ranked high on the search engines!" he said, gesticulating wild growth emphatically with his hands. "And we're going to do pay-per-click marketing too...did you know there are thousands of people per day searching for solar panels on the web? The streets are paved with gold out there!"

That was two years ago, when he insisted he didn't need to spend time on "formalities" like a marketing plan.

A few weeks ago, I ran into him during the course of business and I asked him how things went. He made a funny face and cleared his throat, and I knew where it was headed. Indeed the streets were paved with gold - for his competitors. It seems they had marketing plans.

As it turned out, there are thousands of retailers spending oodles of money to be ranked number one for "solar panels", and the pay-per-click bid rates for the same phrases were insane. If he'd researched a real marketing plan, he would have known that going in.

Marketing plans aren't for presentations - they're for YOU

Whenever I talk to small retailers that see marketing plans as a formality, a waste of precious time and resources, it always seems they've misconstrued the point of a marketing plan. A good marketing plan isn't about fancy Powerpoint slide shows to wow execs in a boardroom, or lure investors.

A good marketing plan is a no-B.S., well researched plan of attack, and the process of creating it forces the entrepreneur to perform the due diligence to truly understand his market dynamics, and figure out how to reach his target audiences in a cost effective way.

A good marketing plan is for the entrepreneur - it's your road map. Without it, you're shooting in the dark, and your marketing dollars are always spent with the stress of "what if this doesn't pay off".

What's included (minimum) in a good online retail marketing plan

• Market Dynamics Analysis - how much money are consumers in the U.S. (or wherever you're marketing) spending on the type of goods you sell? Are average price points going up, or down? What trends in the marketplace support or jeopardize your position?
  

• Competitive Analysis - Who are the competitors in the market? What advantages and disadvantages does each have? Who are the leaders, and why?
  

• Unique Selling Position Refinement - how and why will you be able to compete with the leaders in the market? What customer needs are going unfulfilled by the existing competition? Why will shoppers come buy from you online instead of purchasing in a local brick-and-mortar store? Why will they buy from you instead of your competitors online?
  

• Risks & Advantages - What changes in the marketplace could challenge your unique selling position, or viability? What advantages do you have over your competition?
  

• Ideal Target Customer Profiles - Who specifically would be the easiest customer to sell your product to? If you think "everyone" is an ideal customer for your product, you're probably doomed if you don't narrow down your profile. Even if "everyone" could use your product - trust me, you haven't got the money to market to everyone. Who should you be targeting first? What publications do they read? What websites do they frequent? What other products do they buy? What services to they purchase? How much money do they make?
  

• Potential Marketing Venues - Using your ideal target audiences (previous step), you can now use their lists of interests and other buying relationships they have to figure out how to reach them. Often potential marketing venues will include:
  • The obvious - search engines (including Pay-Per-Click)
  • Comparison Shopping Sites (like Yahoo! Shopping)
  • 3rd Party Affiliate Networks (like Commission Junction)
  • Niche Blogs
  • Online publications
  • Print magazines
  • Social Shopping sites
    

• The Role of PR/Press - if you have a creative concept, and a real value add in your unique selling position, you may be able to leverage the press into highly valuable advertising that would otherwise be impossible to afford. What publications would be likely to write about you? How will you get their attention? How big will the role of the press be in your sales?
  

• Possible Strategic Partnerships - what companies might you partner with, that reach the same target customer audiences you do? What types of cross-promotion deals might be viable for them? How will you reach them? What will your elevator pitch be?
  

• Cross-channel Opportunities - if you have a brick-and-mortar retail store, or mail-order catalog distribution, what cross-promotion can you do with your website that will help increase sales for all channels?
  

• Customer Re-Monetization Strategy - new customers are expensive to get. What role will customer loyalty play in your revenue projections? What loyalty strategies will you implement to effectively re-monetize your customer base? What percentage do you expect will place multiple orders? How many orders per year can you expect from your average customer?
  

• Cost and ROI Projections - chart it out! How much money will you be budgeting for each marketing campaign, over the course of the first year? What returns do you expect on each, over the course of the year.

Using your marketing plan effectively

There's no value in your plan if you don't use it, and chart the results. Start by defining a list of deliverables for the first quarter, with specific deadlines on each. Then start work.

You should be careful to track the results of each marketing campaign independently so that you can easily see which ones are working, and which are not.

Pay careful attention to results, and optimize/change campaigns accordingly.

Update your marketing plan quarterly, based on what you've learned that quarter.

Need help?

Suite Spot Commerce researches & authors marketing plans for our clients, as well as implements their marketing with guaranteed ROI results. You can contact us to get a quote and discuss in detail.

GOOD CHEESE DOESN'T STAND ALONE

I just got my latest copy of Internet Retailer - the industry rag for all of us hardcore e-commerce geeks. This month's issue features an article about whether you should build or buy your online retail platform.

While there are arguments on both sides of this one, small retailers definitely agree that the cost of building a robust platform is prohibitive, not to mention that it takes so much focus and energy it can leave you short changing other aspects of your venture (like sound merchandising and marketing).

But that's another topic by itself, which I'll discuss in another rant later on.

What everyone who's been in the online retail business agrees on is that a good cheese doesn't stand alone. It will be critical to your success in the long run that your selected platform (built or bought) can play well with others.

Making do can kill you

I was working with one of our recent new clients, who's switching from another program to Suite Spot Commerce's platform. They had started with their existing cart program (we'll change the name to keep our competitor anonymous - a good nickname would be "Satan Cart") because their old web designer had recommended it.

But "Satan Cart" didn't integrate with Quick Books, so they had two full time data entry employees whose job it was to manually re-key orders from their cart program into Quick Books.

He figured it was costing him around $5,000 PER MONTH to re-key orders - and losing money during that time. All because their cart software refused to play well with others.

By the time most small retailers discover their precise data integration needs, it's too late.

The cost of band-aids

Small retailers are often budget bound and overwhelmed by the prospect of picking an e-commerce platform from the hundreds advertised all over the internet. To make matters worse, often small retailers don't pick their platform - they end up using whatever their web designer recommends.

It's easy to think "we'll just start with this, and as we have additional needs...we'll have programmers adapt what we have..." But that thought often leads to a costly mistake.

Often times the cost of having custom band-aids developed to meet your additional integration needs is beyond reason.

What you must understand is that most shopping cart software is "closed source" - meaning that it's comprised of proprietary "compiled" modules that cannot be edited by anyone except the original programmer.

So when you need changes to your "inexpensive" shopping cart program - enhanced functionality, or new features - you must either hire the original developer (at a premium price), or pay another programmer to investigate the database constructs and "reverse engineer" the program enough to add in the required features - also at a premium price.

It costs a whole lot less to spend a little more up front for a system that has features you don't need today, but think you might one day need, and that integrates well with other programs.

Do-overs are expensive

Another common flaw of logic is to think that when you need more functionality you'll just "switch systems". Often times do-overs are cost prohibitive, because they typically require all website code to be re-written to fit the new system - not to mention the cost of copying the data from your old system into the new - which can be very expensive as well.

Assessing for the unknown

If you don't know what your needs are going to be down the road (you should assume that you do not), you can still pick a platform that is likely to integrate well, and inexpensively into other software you may need in the future.

A few basics:

• Check to be sure your selected platform has the ability to easily export customers and orders (separately) to a standard flat file or XML format. Many accounting and inventory management programs will support importing from these formats, reducing the possibility of needing custom integration in the future. Also, this way if custom integration has to be done, your programmer isn't starting from square one.

• Check to be sure your selected platform allows for the importing of customers and orders - you may at some point want to list your products with a 3rd party shopping venue (like Shop.com, or Amazon.com), in which case you'll need to be able to import orders.

• Ideally your platform should allow you to accept orders from 3rd party sources using an XML post over the web.

• Check to see if your selected platform is already certified with other 3rd party accounting or inventory management software, like Quick Books - if they integrate with several, you have options, and you can feel more comfortable that it will be possible to integrate with others that may not be supported currently.

• Find out what format the database is stored in. You'll want a platform that uses a standard database program (Microsoft SQL Server, MSDE, Oracle, MySQL, etc.), versus using their own proprietary database format. This way if you need to have a programmer import, export, or create custom reports for your database, it will be possible.

• Make sure the terms of any agreement allow you to obtain a complete copy of your database, should you need it. Some platforms (like Yahoo! Merchant Solutions) will NOT give you access to your complete database - thus increasing the cost of switching to another platform should you ever need to