Optimizing Your E-Commerce Conversion Rate: Analyzing and Improving Traffic Quality
Variable #1: Traffic Quality
If you sell pencil sharpeners, and most of your traffic is redirected from a Youtube video that shows a guy balancing a pencil sharpener on his nose, it's not very likely that the visitors to your site are interested in purchasing pencil sharpeners. Your bounce rate will likely be sky-high. I recently saw a massive increase in traffic to one of our client's sites, increasing their monthly traffic volume by around 30%, but they only made one sale from all of the traffic. It was a major design gallery hit that caused the traffic. People were going to the site to look at the design, not buy stuff, so of course, the conversion rate for that traffic source was 0%. In these cases, the traffic quality would greatly decrease the conversion outcome, despite the quality of your Value Presentation and the Ease of Purchase. The Value Presentation and Ease of Purchase variables would have to pick up a lot of slack to absorb the poor traffic quality and generate conversions.
If, on the other hand, your traffic quality is very high, it can absorb weakness in your Value Presentation and Ease of Purchase. Specialty stores are a great example of this. They offer a very narrow product that you can only get from them. Their site can have a really bad design and no marketing continuity or promotional sensitivity, and it can be really difficult to purchase the product, but they still convert visits to purchases because the traffic to their site is looking for what they're offering. This situation can be broken down via a few Value/Cost-based criteria:
1. Perceive they immediately need/want what you're offering
Many of the people who arrive on a specialty site will most likely perceive that they need/want what is offered. Otherwise, they wouldn't have ended up on the site. They either searched for the specific specialty item on a search engine or were referred by a friend or other site that clearly defines the specialty. Hopefully any traffic that arrives and immediately leaves wasn't traffic that required resource allocation to generate.
If a visitor does not perceive that they need it immediately when they arrive on your site, you must either persuade them that they do need/want "it" immediately if you wish to convert the visit into a sale. That may not be the right goal, though. Oftentimes, the right goal is to build loyalty without asking for the "final" sale by asking for intermediate commitments, like signing up for a newsletter, following you on Twitter, ordering a catalog, or any other intermediate step that generates a larger degree of intimacy with that visitor. How quickly you seek to convert a visitor to a purchase depends largely on the nature of your offer. If you are selling novelty T-shirts, converting the sale on the first visit is likely the right pursuit. If, however, you are selling vintage wine, it is likely not advisable to convert on the first visit. Quality traffic flow analysis can bring clarity to this kind of question though.
Key Point: Do not base your decisions on what seems reasonable or intuitive. Look at the data and react to what is actually happening.
Key Point: "What is my bounce rate?" is not the right question. "What is the bounce rate of my quality traffic?" is the right question. In other words, are the people you want to be on your site staying? That's all that matters. Who cares about the designers who are just browsing for design inspiration. If they bounce, it doesn't matter. Do you think we freaked out when the general bounce rate spiked after the major design gallery hit? Of course not. That is to be expected. Asking the right questions is the fundamental key to conversion success (oh, and the key to success with everything else, too).
2. Perceive it to be worth more than they perceive it costs them.
There are two variables here: Perceived Value and Perceived Cost. To help the visitor to pass this Gauntlet milestone, you must affect one or both of these factors. There is no other option.
Value is a tricky thing. No two people perceive the same thing as equally valuable. In fact, I could wax philosophical here and pose the question, "Does true value even exist?" but I will refrain. Whether or not there is a true value to anything, people perceive it differently. Our team believes in trying to correctly assess the true value of what we offer and represent that value well. That encourages our team to constantly improve the value of what we offer, which we appreciate.
There are two factors of perceived value: Pre-Existing Evaluation and Interaction Effect. The pre-existing evaluation is relevant to the Quality Traffic variable; the interaction effect is relevant to the Value Presentation variable.
1. Pre-Existing Evaluation is how the visitor evaluates the product or service prior to interacting with your marketing media. Except in cases where the individual has never heard of your product or service, everyone will have a Pre-Existing Evaluation. This is not something you can affect. Ideally, you want to attract visitors who have a very high pre-existing evaluation of your product or service. High pre-existing evaluation has a positive effect on Traffic Quality, but it's not the only sub-variable of Traffic Quality. Most people have a very high evaluation of a Lamborghini, but that doesn't mean Lamborghini should try to attract "most people" to their show room. We'll discuss the other sub-variables shortly.
2. Interaction Effect is the effect the interaction with your offering, specifically your e-commerce site in this case, has on your visitors pre-existing evaluation. The only factor in the Interaction Effect that is relevant to Traffic Quality is how Impressionable the traffic is, which makes them more receptive to positively changing their evaluation of your product/service. We will discuss the Interaction Effect in greater detail when we discuss the second variable, Value Presentation.
The first mistake people make when considering Cost is to assume that it's simply the price. It's not. First, the same price will be perceived differently in how costly it is depending on the perspective. A multi-billionaire perceives a private jet to be a very low cost; a millionaire would perceive it to be extremely costly. When thinking about Perceived Cost, think about it in terms of Perceived Sacrifice, as that is what the person feels. How much a person feels they will experience sacrifice as a result of making a particular decision is a different way of saying Perceived Cost.
Many people perceive less sacrifice in purchasing a $3,000 ring for $100 per month for five years than paying $3,000 cash immediately, even though the first option is twice as costly in terms of cash than the second, and yet it is considered less costly. Clearly, Perceived Cost and price are not interchangeable.
Money isn't even the only factor that plays a part in Cost Perception. Time, stress, focus, and forms of sacrifice are equally important to consider. Convenience is becoming more important in the purchase of goods and services because a higher value is being placed on time, focus, and stress avoidance. People value time more, so using less of it means they feel less sacrifice. This is especially relevant to the third variable, so I will bite my tongue for the time being.
To conclude this section on Perceived Value and Cost, consider that in order to pass this Conversion Gauntlet obstacle, the visitor must perceive more value than cost in the acquisition of your good and/or service. Consider all the factors that affect Perceived Value and Perceived Cost. Most people just look at price. Don't be sucked into that ignorance. It's not about price. It's about Value and Sacrifice (Cost).
There is tons more to say about the relationship between perceived value and cost. I could literally write an entire book about it. But I will be patient and elaborate on it later.
3. Be able to complete the transaction process without falling below the "Adequate Value Threshold."
The "Adequate Value Threshold" is that point at which the Perceived Value falls below the Perceived Cost or the Perceived Cost rises above the Perceived Value. I will be writing a blog post on this idea alone as it is an essential piece of theory that every business person and marketer needs to be able to visualize graphically.
Two important questions relevant to Traffic Quality:
1. Do they have the technical skill to complete the process?
Your visitors need to be able to use the internet and complete a transaction online in order to purchase from you. If their technical skills are lacking or if your process is difficult, their attempts at completing the process may produce a great deal of stress or take a lot of time and focus, both of which increases their Perceived (and actual) Cost to complete the transaction. This can push the Perceived Cost above their Value Threshold, which is the point at which a person says "No." Generally, the later this occurs during the interaction, the more likely it will cause the visitor to exit the interaction with a negative outcome. Visitors don't typically expect to see adequate value in a product or service early on in the interaction, but once they cross the value rises above the cost or the cost dips below the value, a cross back over typically greatly reduces the likelihood of a positive outcome.
2. Do they perceive significant risk in giving their credit card and other personal information to a business online?
Security is so important to people because it represents the absence of risk. Risk is a sacrifice, and therefore a cost. Reduce risk and you reduce the cost to the visitor. The less your traffic consider it risky to give personal information, the higher quality traffic it is as it relates to conversion rate specifically because fewer visitors will abandon the process due to the perceived cost of insecurity/risk.
4. Have the resources to absorb the cost right now.
I clearly have chosen specific verbiage here to represent a more accurate truth. I could have just said, "They gotta have enough money to pay the price," but, to belabor the point, it's not just about money. Do they have the time, money, and emotional and mental strength to absorb the costs of time, money, stress, and focus that is required to complete the purchase?
Convenience has become a major factor more recently because people are tending to value their time more. Consider what your target audience values (make a list!) and be sensitive to those values. If you can't connect with what your audience values most, how in the world are you going to communicate any value to them?
Traffic Quality is the nature and condition of people when they arrive on your site. There are a vast array of preset values that will affect how they respond to your Value Presentation. Your Value Presentation is not right for everyone. In fact, it's probably not right for the grand majority of the market. Make sure you're attracting the right Traffic for your Value Presentation. Sometimes, though, it's easier to change your Value Presentation to conform to the Traffic Quality you have. In the next section, I will discuss how Your Value Presentation can affect the two criteria for conversion and what factors you need to consider in optimizing it to better deliver value to your Traffic.
Coming Soon... Article #3 in the Revenue Optimization Series: Value Presentation. I don't know about you, but I feel like I'm in marketing heaven already.
Wrong Question #1: What is a good conversion rate?
There is no global "good" conversion rate. It really depends on your particular circumstances. Consider this. If you have a product that requires a large amount of consideration and research before a purchase decision is made, you may have visitors that visit your site 20 times before purchasing. Since conversion rate is calculated by purchase orders divided by total number of visits (# of Orders / # of Visits = Conversion Rate), your maximum conversion rate is only 5%. So if half of the unique visitors that are coming to your site end up purchasing, you are achieving a 2.5% conversion rate. This is over-simplification, but you get the picture. Determine your target conversion rate based on your offering and your audience. Don't listen to gurus who herald their ability to produce xx% conversion rates and that you should be generating that conversion rate as well. If their traffic is exclusively club members and their product is mandatory membership cards, their claims becomes less impressive. In fact, aiming too high on your conversion rate can generate bad decisions. By trying to get your visitors to push the button too quickly, you may miss out on opportunities to cross-sell or up-sell and you very likely will get to a point when you stop serving their best interests (and that's what you want most, right?). If you need help, find a consultant that wants to know your business before telling you what your target conversion rate should be. That's a good sign they'll be helpful.
Next article: Value Presentation (will link to as soon as the article is finished)
Posted on February 23, 2010
Posted by Kurt Theobald