Friday's Debut Stock Price

Just this past Friday, Groupon released their IPO. In the first few hours of trading, the stock jumped from $20.00 a share at the opening to $26.11 dollars at the close, a 30% increase. But it’s not just startups that are part of the craze. Google has recently started Google Offers, with several preliminary markets in Los Angeles, Atlanta, New York, Houston, and Chicago. With all the hype on daily deals and cut rate discounts, how are eCommerce merchants supposed to compete? In order to keep up with daily deal and deep discount sites, eCommerce merchants need to evaluate what their strengths are and how to leverage their competitive advantage to move ahead of the competition. Here are three ways in which your site can beat the price war:

1.) Stock/Inventory: Daily deal and discount sites often have a limited supply of goods in their
inventory, precisely because they purchase excess inventory for firesale rates and resell them to the general public. Brand names, like the one on the right, often go for 80-90% less than their MSRP. They sell these goods until they are sold out or the deal expires. Have a well stocked inventory or a reliable supplier, and customers will be pleased that their products are available.

2.) Aesthetics and Variety: One way eCommerce merchants can rise above the competition is to have an intuitive and easy to use site. Sites like 1saleaday.com have little else besides the four items of the day for sale on their site. There is no welcome page or the ability to browse different categories. Your advantage is to provide choices for the consumer, even if your site sells a niche product. The ability to customize and provide a satisfying customer experience is underestimated, and can be used to great effect on your site.

3.) Incentives and Recommendations: You can’t compete with these sites on price, but that doesn’t mean you can rule out incentives. Well placed incentives, whether it be free shipping, discounts, or rewards for customers who purchase from your site, increase your conversion rate. But don’t stop there. Target customers by analyzing their purchase intent and show incentives to customers who are on the fence about purchasing your products. Not only does this increase revenue, but profits increase because customers who would have bought anyways are not shown your deals. Here at Runa, we call these Smart Deals.

Smart Deals are the future of eCommerce. Forrester recently conducted a study of the trends in eCommerce, and came to a conclusion that methods of using algorithms to predict consumer behavior was the next big trend in the online retail industry. Here is a small excerpt from that study:

For retailers looking to grow their conversion rates — which typically hover around 3% —
conversion marketing provides opportunities to address the other 97% of visitors. Some
examples include startups like Runa, which enable retailers to trigger offers to customers that
are only valid for a current session

More from that study is here.

You can’t win a price war with these sites, but here are just three ways that eCommerce sites can rise above the competition to grow their profits and revenue. Focus on what your site does best; like the aesthetics of your site, the variety and the availability of products for sale, and most importantly a way to target and incentivize those customers who are on the fence about purchasing your products.

The point is that the amount you spend in time and money on SEO/SEM is directly related to the complexity of this marketing tactic. With so much at stake, you can be sabotaged by other sites that participate in Black Hat SEO, or those that create their own autonomous bots that can click on your Pay Per Click (PPC) advertising. It’s a dog eat dog world in search engine marketing, but your site is your guaranteed sanctuary. Coddle your potential clients with a beautiful site, easy interfaces, and targeted deals, and they won’t let you down.

Speaking of problems in SEO/SEM, some studies have entered the field to describe what goes on in this chaotic world. One study by Hal R Varian, an economist at UC Berkeley, discusses what economists call Marginal Returns in detail:

In choosing its bid, the advertiser should consider the incremental cost per click: how much more money it will have to spend to get additional clicks. If the incremental cost per click is less than the value per click, the advertiser should increase its bid; if the incremental cost per click is less than the value per click, it should decrease its bid. In equilibrium the incremental cost of moving up one position should exceed the bidder’s value per click, but the incremental savings from moving down one position should be less than the bidder’s value per click.

More here, if you’re up for it.

All this econ technobabble is confusing, but the main point Varian tries to make is that for every additional dollar you spend on SEO/SEM, the less profit you will receive in the long run, per dollar. For merchants, please be careful in how much you spend in SEO/SEM! It definitely works, but be aware that the law of marginal returns is not on your side.

I should mention that I am all for SEO/SEM, I believe that traffic is extremely important to any online merchant, but it’s not the end all and be all of their marketing efforts. Any merchant should be aware of the problems they have, and the solution is to maximize their revenue in other arenas, specifically your site. In the next coming days, I will discuss other problems for traditional eCommerce marketing techniques, starting with affiliate marketing.

Vincent

I am glad to announce that I will be a co-writer for the Runa blog. Although this blog will primarily be about eCommerce, I am not limited to this industry. Please send me any comments or topics you would like to discuss, and I’ll be more than happy to write about it!

Here’s a small preview about what you can expect on this blog:

Markets in everything:

These posts will be devoted to interesting Magento and Miva merchants that sell unique and interesting items. If you know of any merchants that you would like to showcase I would love to show off all the different products that eCommerce merchants have to offer!

Trends in eCommerce:

This is pretty self-explanatory. There are many different areas where entrepreneurs can provide a service for merchants. I will do my best to describe where eCommerce is going and how merchants and developers can take advantage of the potential niches.

Controversial News:

For these posts, I will try to keep as impartial as possible. I will personally try to reveal both sides of the issue. If you happen to sense my political beliefs, please call me out on it! I want an honest discussion on news that divides eCommerce merchants.

That’s about all for now! Be sure to check in everyday for updates.

Vincent

If you search for “How to increase eCommerce conversion rates” on Google, you get more than 36,000,000 results.

There are, after all, so many things that influence conversion. Each factor makes a difference, and ultimately, to maximize conversions you have to tweak all of these variables. Some of the most popular suggestions seem to involve things such as:

• Page load times are inversely proportional to conversion rates. There are studies of how retailers were able to reduce page load times by a factor of 3x to 4x, and got a resulting increase of 2%.
• Cross-selling doesn’t necessarily have any material effect on the bottom-line: in fact some studies show that conversion-rates actually decrease (even though that decrease was made up by larger cart-sizes)
• Look and feel is a classic lever: folks are encouraged to use A/B testing to see what designs work in their favor. This is an open-ended experiment, since the number of available options in a subjective area like aesthetics and usability are innumerable. Some retailers are seeing 2-3% increases in conversion thanks to improved designs.
• etc…

There’s plenty of such content online. Doing these things is obviously important, but the ROI can be limited. For instance, it can take a lot of time/effort to decrease page load-time by a factor of 3x. When looked at against a resulting 2% increase in conversion, it seems touch-and-go at best.

Moreover, applying such changes to your site without doing any kind of control/testing is not recommended. This means you have to first measure how you’re doing (say you have a 3% conversion-rate baseline), then try a change, and measure again. This needs to be a rigorous process – you need to set up some software/service that can track these metrics in a proper, statistically valid manner. Only by looking at the data can you make the right decisions.

The price factor

The one factor that is hard to “tweak” is price. Sure, you can run promotions and offer coupons, but these are static, temporary changes in price that are based on limited forms of data analysis. The typical scenario is a variation of this: a merchant installs some kind of an analytics service, then looks at the sales data during a certain period of time. They see that a certain set of products are suffering from weak sales (whatever that means to them) and that those products may benefit from a special promotional campaign.

How do they decide what the promotion should be? Should it be 5% off? or 20% off? How long should they run the promotion for? Will the data based on which they made the decision still be valid for the duration of the promotion? Or will it no longer be valid (maybe there was seasonality in there, or there was event which changed people’s conversion behavior). Who should they target the promotion at? Everyone? Or do it through a coupon system and a random few will get to use it? At what point on the shopping funnel should the promotion be advertised? Right on the home page where everyone in the world can see it? Or on product detail pages? On all the product pages, or on only those that are on the promotion? There are dozens more of these questions…

And there are no scientific ways to answer them. Again, you’d have to run A/B tests on *each* of those variables to figure out what the best approach was… that’s a lot of combinations.

Runa SalesLift

The Runa SalesLift service does several things. It automatically collects and analyzes data. It uses that data to run promotions. And it uses the price factor as the lever. You can think of SalesLift as a smart-deals service. We use real-time analytics from data gathered from your own site to offer the right personal deals, to the right shoppers, on the right products, at just the right time.

Here’s how it works: SalesLift tracks dozens of parameters of your web-store, and does this for each shopper that lands on the site. It then uses state-of-the-art algorithms to build statistical models of conversion behavior, in order to understand conversion patterns of your business. Then, armed with this insight, it profiles individual visitors against these models in real-time, while they’re on the site. It figures out the probability of their conversion were they to be offered a deal. It it decides to, it delivers and redeems the deals seamlessly. It delivers significant sales increases using these smart deals, and continues to auto-tune the algorithms as it collects and analyzes more data.

Note that the Runa SalesLift delivers and handles the redemption of the offers seamlessly, while the visitor stays on the site. Everyone knows how hard and expensive it is to get a customer to come back to your store after he/she has left. This is handled in a manner that’s completely transparent to the end user. Finally, Runa SalesLift runs a continuous and automatic A/B test, so that results can be measured and tracked in a statistically valid manner.

The Runa SalesLift service promises to increase conversion rates by at least 10%, or there is no charge. There are no install fees, no license fees, no monthly fees, no minimums, and require no long-term commitment. If you’re on a supported platform (say Miva Merchant or Magento Commerce), the install time is about 15 minutes. If not, we have an API which most merchants implement end-to-end in 5-10 business days.

Offers can be controlled by each merchant via our simple to use Dashboard. The Runa Dashboard also shows a lot of reports based on the conversion insight gleaned from the data. Merchants can quickly tune parameters on this dashboard, and let SalesLift increase their sales day-after-day and hour-after-hour.

Maximise ROI

What we recommend our clients do, is that they continue to improve all kinds of influencers on their own site – design, load-times, etc. On top of that, we recommend they use SalesLift to take advantage of the lever that does work with customers today – after all, everyone expects deals in this economy. However, instead of giving away the farm, we recommend using Runa SalesLift to target the deals where they have maximum impact.

Since it’s free to install and use, and you only pay *after* getting at least a 10% increase in sales, what’s there to lose?

Imagine you had an e-commerce website. Also imagine that someone was advertising a great conversion marketing service that promised to solve all your problems and to double your sales. And all without you even doing anything beyond the install, since it was all automatic (having been built upon alien technology from the future). Imagine that they said they would only get paid if your sales increased by more than 10 percent, and that when that happened, they would charge you only a small percentage of your sales – say between 1 and 5 percent depending on how much you sales lift was.

What if they promised there would be no other fees – no install fees, no licensing costs, no monthly minimums, and no long-term contracts! That would be a great deal, wouldn’t it?

The profits!

It would mean that if your web store revenue was a million dollars to begin with, and if the conversion marketing system increased your sales by 30%. You’d be pulling in 1.3M at this point. And at a 2.5% fee,  you’d only pay about 32K for it.

In fact, the profit numbers would work out even better. Let’s say your net margin was 10%, which means that on sales of 1M, your profit was 100K. Since there are no additional sales costs to these incremental sales, all incremental revenue minus cost-of-goods (COG) would flow to your bottom line. If your COG was even 50% of revenue, we’re talking about 150K of extra profit.

In other words, your profit would go from 100K to 250K, a 150% increase. Even after paying the fee, we’re talking about a nearly 120% increase. After all said and done, this is 120% of extra profits for free.

This would be an awesome deal, wouldn’t it? Sigh.

The parallel universes

Of course, the first question you’d have to ask is – how the heck do they attribute all those extra sales to their system? What if you were doing other things to improve sales? After all, who knows your business better than you?

That’s where the parallel universe comes in… you could take the spare universe, and leave your store running as it was in there, with no changes. Then, in the regular universe, you’d use the new-fangled conversion marketing service. This way, you could compare the results from each universe and know exactly how effective the service was. And if you wanted to try out new ideas also, you’d try them in both universes, making sure that the effect of those changes didn’t confuse the measurement of the conversion marketing service. Simple! All you need are a couple of parallel universes.

A/B testing

To get around this lack of parallel universes, smart people from our single universe came up with the A/B testing approach. The job of A/B testing is simple – it isolates a part of your overall universe, to enable the measurement of something specific, and without contamination from other changes. For example, if you could divide your store into two parts, one where you do not apply the conversion marketing service, and one where you do, you could do the same sort of comparison as though you had two universes.

The trick would be to ensure that the partition of the website was done in a completely unbiased manner (statistically speaking, at random). Also, to get the maximum benefit from the service (since it makes you lots more money!), you’d want to ensure that the section where the service was turned off was as small as possible, while still being statistically representative.

Of course, to do this, you’d want some more of that alien technology that made it so you didn’t have to expend any effort.

Parallel, not serial…

The whole parallel thing is important, because not only do you want to exclude the influence of the service, but also ensure that any other variation is happening to both sides at the same time, equally. For instance, if you run a campaign of some kind, or it’s holiday season, you’d want that to equally impact both sides.

This ensures that you’re truly measuring the impact of the conversion marketing service, in a valid, unbiased manner.

So, how does Runa measure sales lift?

A/B testing!

We create a smaller, controlled universe within your store, where we don’t interfere with business as usual. We let shoppers do what they would otherwise do… and then measure how your store would perform based on that. If you’re running special campaigns, or there is seasonal variation, we let those pass through, so the only thing that’s different between this little microcosm and the rest of your store is the Runa SalesLift service.

This way, we can continuously, and automatically track your “natural” performance. And you only pay us what’s fair.

The conversion rate situation

You’ve spent a lot of money on Google and other search engines, buying ads and running campaigns. You’ve got a certain level of traffic from doing this, and some of this traffic converts into buyers. The ROI could be better, but it’s a start.

You’ve now got to figure out ways to increase your sales. There are several ways of doing it – improving the look and usability of your site, improving the level of customer service, email marketing, etc. Despite trying all these things, most merchants are quite unable to move past the 2-3% level in conversion rates.

The solution, always, seems to revolve around spending more money on Google, buying more ads, getting more traffic, and converting more people at the same low rate.

Deals, deals, and more deals

Given that so many people have tried so many things to increase conversion rates without much in the way of success, people seem to have gone back to basics. The poor state of the global economy may have had something to do with this, but deals are back in a big way. The great recession first led to mark-downs and price-slashing across the board. Then, some smart folks saw the opportunity in managing and driving new business through deals, and a whole host of companies emerged in this space, the most popular being Groupon and LivingSocial. There are many more.

There’s nothing new in the act of offering a deal, of course. Giving some form of incentives to prospective customers has always been a mainstay of sales and marketing. What’s changed is how everything is packaged and delivered. Groupon and others use the “Daily Deal” model, where they entice large numbers of consumers to pre-pay for a part of their order. Consumers like this because in exchange for the pre-payment, they get a nice discount. Depending on how the numbers work, this can be a great way for businesses to gain a large number of new customers and orders.

No Groupon for e-commerce

Most businesses that Groupon (for example) works with are local businesses, usually small outfits. The reason is that, from their own point of view, these stores don’t have much differentiation between the products they sell. For instance, a spa doesn’t really care if you use a Groupon for a facial or a massage. Same with restaurants, they don’t care if you get the pizza or the hamburger.

Online business aren’t particularly suitable for Groupon-style deals because they work differently. Typical e-commerce sites sell a variety of products, which are quite different from each other in terms of, say, cost of goods and profit margin. As an online business owner, you don’t want to offer blanket deals across your entire inventory. You’d want to offer deals restricted to sections of your inventory. This is how most online discounting works – it’s quite specific – for example, by category, or sub-category, or individual SKUs.

Groupon for online merchants would need to support this kind of SKU-level control. This is a very hard problem to solve in a general manner, since it means Groupon would have to integrate with merchant carts, and then in real-time determine if the products in the cart were applicable to the deal in question. Way too much work for a one-time deal!

This is why e-commerce isn’t suited for these kinds of blind, site-wide offers. The basic premise of Groupon-style deals is very solid, however – acquire new customers, move excess inventory, get your brand out there. What’s needed is a system that can offer deals in a much more controlled manner.

The art of the Smart Deal

Runa’s advanced SalesLift service offers a unique take on deals. Instead of offering daily deals, or site-wide deals, you can now offer Smart Deals. A Smart Deal is the right personalized deal, offered to the right shopper, on the right product, at the right time.

How does Runa SalesLift work? We’ve taken some extremely complex technology and packaged it up in a way that is extremely simple to use. We integrate with your e-commerce cart, and collect data on what your consumers are doing: pre-click info (what we can gather about where they came from, search terms used, etc.), what they do on your site (what products they view, what they add/remove from their cart, what pages they’re browsing, how much time they’re taking between actions, and a lot more). We then analyze all this data using state of the art algorithms and we build up a conversion behavior model for your site. This is updated in real-time as we feed it more and more data.

When a shopper comes to your site, we use all this insight along with the shopper-specific data from that session and from her past visits (where she came from, what she did, what products she looked at or bought, etc.) to figure out when (or even if) a deal should be made, and what the deal should be. The service then seamlessly delivers the offer and the shopper redeems it automatically in the cart.

Control issues

The best part of this personalized Smart Deals system is that you, as the business owner, are in complete control. Deals are given based on business rules you can specify in our dashboard. You can set maximum discounts, include/exclude products, and so on.

Runa SalesLift is like autopilot for your business – you set your sales increase goals, and SalesLift gets you there!

Results

We now have nearly 300 online merchants using  Runa SalesLift, and we’re seeing some very positive results. On average, our merchants are seeing sales increases of 30 to 60 percent. Given how the numbers work (there’s no additional cost to getting these sales, pretty much just the cost of goods), these incremental sales flow straight to the bottom line. In other words, when a merchant with a net profit of 10%, gets a Runa SalesLift boost of 30% in sales, can mean almost a 150% increase in profits.

Given these results, and our no-brainer pricing, we’re seeing more and more merchants adopt the Runa service.

Conversion Marketing is where Google stops and Runa begins

As a business-stakeholder of an online store, you probably spend 20 – 30% of your revenue on marketing. Marketing, of course, is a broad term, but it’s probably true that a large chunk of that budget goes to online advertising. Such spending on SEM has been an increasingly large slice of the web-marketers budget over the past few years, and is projected to continue growing. However, return on this spend is hard to quantify, and has not really improved the low 2-3% conversion rates that is the global average.

Runa was born from the recognition that SEM is just the beginning. Conversion Marketing (CM) is going to increasingly be where the next level of effort needs to be directed. To understand this, let’s first recap the role that Google and other search engines play in the internet shopping flow.

What Google Does

Online retailers pay search-engines such as Google a lot of money for advertising. These ads either appear alongside search results when people search for things, or on a huge number of other “publisher” websites such as blogs and news sites. The good thing about these ads is that they are relevant to what people are looking for (on search engines) or what they’re reading about (on other sites), and so are potentially useful.

When people click on these ads, they get sent to various advertisers’ sites, and most of them are online stores. In fact, if a merchant isn’t within the top few dozen retailers in the world (and hence has limited brand-awareness and loyalty with consumers), traffic from such paid sources accounts for most of their revenue. This is why search engines make so much money!

Google is extremely good at this, and indeed they disrupted the market when they arrived on the scene a few years ago. They changed the traffic generation game from being CPM-based to being CPC-based. Why pay for just eye-balls when you can pay for actual clicks? In this manner, Google was able to show that their interests were aligned with those of their advertisers. After all, the whole point of an ad is to get a shopper into your store, not just to tell him about your business.

What Runa Does

Runa is the step after Google.

Getting a shopper into your store is a good first step, but we help you improve the next crucial step: of making a sale. After all, you only make money when a potential shopper becomes an actual purchaser. So here is Runa’s mission in life: to help online merchants increase their conversion rate, and therefore their sales and profits.

The average conversion rate on online stores, globally, is around 2%. This means that of every 100 visitors, only 2 ever buy anything. And merchants have to pay for all 100. This is quite an inefficient way of doing business, and this is where Runa focuses its attention.

Runa SalesLift is a SaaS offering that is easy to integrate into your online store (it just takes about 15 minutes to do so). Once you implement it, SalesLift starts collecting comprehensive data about each visitor of your store. This includes pre-click information such as where they came from (if they came from a search-engine, or were they familiar with your site, or if they came from an affiliate site, or from some other site, if they came from a paid search ad, if they came from a shopping comparison engine, etc.), what search terms they used to get to your site, where they’re located (geo-location), time-of-day, day-of-week, and more. It also includes post-click information such as what products they’re looking at on your store, what they’re adding to their carts (and what they’re removing), how long they’re spending on each page, what path they take through your site, and so on. We also track if the visitor is a first-time visitor, or if they are a returning visitor, what they did on their previous visits.

All this data and more is streamed back to Runa’s servers, and is then analyzed for conversion patterns. With this understanding, when a visitor comes to the store, SalesLift is able to decide if offering a Smart Deal will convert the person. A Smart Deal is the right deal made to the right shopper, at the right time, on the right products.This offer is made to the shopper in real-time, while he’s still browsing. We’ve seen this kind of personalized and targeted offers increase sales by an average of 30 – 60%.

Runa is changing the game again. Just as Google changed things from the status-quo of CPM to CPC, Runa is making a change to CPA. That means Runa’s pricing is based only on actual sales increases.

What Conversion Marketing Does

If Google is the person outside your web store directing people in, then Runa is the person inside your store, ensuring that more visitors buy things. This is the difference between SEM and CM, and Runa is a leader in the conversion marketing space.

Runa’s approach to CM is our SalesLift service, which offers shoppers Smart Deals, while they are still on the site. This means that there is no additional cost to acquire these extra sales, and that a 20% increase in conversion often results in a 50% or more increase in profits. This is the magic of incremental sales.

Here’s the bottom-line. Runa’s solution to CM increases the yield of your existing traffic. The money spent on driving traffic to your store stays the same, and you benefit from a 30 – 60 % increase in sales. It’s that simple.