Conversion rate on mobile is really equal to conversion rate on desktop

I’ll get the punchline in first. My thesis is that if you measure your conversion-rate as:

Checkouts per visitor-minute spent on your site

then most of the differences in conversion rate between device-types will evaporate, and you’ll discover that your mobile visitors convert just as well as your PC and tablet visitors.

To be more precise, my proposal is that checkouts per quantum of useful information/content consumed is the best measure of conversion; unfortunately this is very difficult to measure directly, and visitor-minutes is a reasonable proxy.

OK, so now for the back-story, analysis, and a request for some data-sharing.

I’m currently doing the research needed to bring my book ‘The Multichannel Retail Handbook’ back up to date. Obviously one of the chapters that most needs revising is the one on Mobile, because it’s an area that’s developed extraordinarily quickly, even since I wrote the previous edition in 2012.

I was peacefully trotting out a draft including the received wisdom that mobile visitors don’t convert as well as desktop or tablet visitors. There’s plenty of published statistics demonstrating this, and typically they quote a kind of 40:90:100 index for smart-phone:tablet:desktop conversion rates. On a typical retailer’s website, this might translate as conversion rates of 1.2%:2.7%:3.0% or something like that. Obviously it depends what you sell and so forth. The blended use of the term “mobile” meaning both smart-phone and tablet together makes me wince – the channels are totally different in usage and behaviours - but a generic mobile conversion rate is about 50 on the same index, or 1.5% as a percentage.

Nice charts make better books and articles, so I had a hunt through the Google Consumer Barometer 2014, for some extra supporting data, expecting it to tell me that people use their smart-phones for research, but not so much for purchasing, which also seems to be received wisdom. The actual data was rather confounding.

Google asks two questions, which I’ll paraphrase as:

Q1. Did you perform research in the last week on your device?
Q2. Did you buy a product or service in the last week on your device?

Clearly they get a percentage of respondents that says yes or no to each question. Where it gets rather interesting is if you express Q2 as a percentage of Q1. Essentially you are asking:

Q3. What % of people who researched online on a device also made a purchase online on that device, over the duration of a week?

Here are the results for a sample of countries:

In many countries – the UK, Germany, Japan, UAE and even Russia on this chart – the differences between mobile and desktop customers suddenly disappear. In most others they are much less than expected, and for China specifically the (not wholly unexpected) suggestion is that mobile converts better than desktop.

How, then, to reconcile this with the well-documented statistics that show that there’s a big difference? The answer appears to lie in the structure of the question. Notice that the Consumer Barometer asks about an extended time period: a week. It does not ask about ephemeral visits, visitors, or page-views.

Depending which studies you believe, most purchases have a consideration duration of somewhere between 2 days and 2 weeks, in countries where the internet retailing is well-established and therefore online research a prevalent shopper-behaviour. There’s a hint of some consistency here: Consumer Barometer asks about a week, shoppers take about a week to decide.

What we seem to be seeing is that a shopper needs to consume a consistent quantity of information in order to make a purchase decision. The ratio we’d really like to study is

Checkouts per quantum of information consumed

but that isn’t terribly easy to measure, so we need to look at some more accessible proxies for it.

One possibility is page-views. This is often a KPI, or wrapped into a more complex “engagement” KPI. But if you think about it in terms of quantity of information it’s unhelpful. A page on a mobile site often contains much less information, and even if it doesn’t, shoppers engage with mobile site pages differently. On desktop they read the detail, on mobile they just read the headlines, and moreover they may read in a much more interrupted environment such as while commuting.

Fortunately there’s a much better statistic: session-duration. The first thing this does is bear out the headlines vs detail idea. Here are the published session durations for the New York Times:

NY Times Data	Avg Pages per Visit	Avg Session Duration
Mobile	2.55	1 min  43 secs
Desktop	3.58	17 mins 31 secs

(Data source: SimilarWeb/Clickz)

Much more importantly for a retailer, it also bears out the idea that checkouts per visitor-minute is a much better measure of the effectiveness of a given channel. Obtaining publishable conversion data for retailers is pretty tricky. We can at least test the hypothesis in print by considering session-duration data published for Amazon against generic conversion-rate data.

	Generic Conversion Rate	Amazon Avg Session Duration	% conversion rate per minute session duration
Blended Mobile	1.5%	4 mins 38 secs	0.32%
Desktop	3.0%	8 mins 35 secs	0.35%

(Data source for Amazon: SimilarWeb/Clickz)

As if by magic, the conversion rate per visitor-minute is pretty much consistent across both channels! 

OK, one data point doesn’t make a case. Privately I’ve tested this against various data that clients have shared with me, and it does seem to stand up remarkably well, but unfortunately of course I can’t publish such data points.

It seems to “feel” right though: the quantity of checkouts you’ll get on a channel is proportional to the time (or more likely in reality, information) customers engage with you and glean some information or data that’s useful to them in what they’re doing. Viewed from the customer’s perspective, a successful visit to a site – a “conversion” from their point of view – is one where they succeed in finding out what they wanted to know.

They might do that staccato on mobile, gathering one bit of data and then looking elsewhere. Or they might do it legato on desktop or tablet, gathering multiple items in one trip. More likely they’re doing both, during the course of their decision-making process over a week or two. There’s a probability that this particular item of information, gathered on this particular visit, is the final piece in the jigsaw for them, and results in a conversion from your point of view. The chances of that happening on a given channel or device are proportional to the time-spent=information-gathered on that channel.

If this idea is right, it’s potentially a very good way of measuring the relative effectiveness of your user-experience by channel. Viewed overall it tends to suggest that the stereotype that mobile doesn’t convert anywhere nearly as well as desktop is simply wrong.

What would be really interesting is if there are sites out there willing to share data that supports or challenges this. For those worried about confidentiality, I’d simply note that you can use any arbitrary time-unit and then not make public what that time-unit was, provided you use it consistently across devices or channels, and then just report checkouts per internally measured session-duration unit by device-type.

Harry Potter and the Brands Lost by Retailers’ Site Search

  Professor Snape looked up at the class. “You are here to learn the subtle science and exact art of merchandising on retailers’ websites,” he began. “As there is little foolish brand-waving here, many of you will hardly believe it’s just about managing your retailers to get some basics working in your favour.”

  “Potter,” said Snape suddenly. “What would I get if I added sodium lauryl sulphate to an infusion of powdered glycol distearate?”

  “I don’t know,” said Harry quietly. “I think Hermione does, though, why don’t you try her?”

  “Sit down,” he snapped at Hermione, whose hand had shot into the air. “For your information, Potter, they are two of the main ingredients of shampoo.”

  Ron eyed Snape’s lank greasy locks, and sniggered.

  “Five points will be taken from Gryffindor,” snarled Snape. “And since you appear to find it so amusing, Mr Weasley, why don’t you take out your tablet now, and try to find some online appropriate to your needs?”

  He waved his wand and the search term “men’s shampoo” appeared on the blackboard. “The majority of consumers that don’t simply enter the brand name itself will use a generic search term of this type before trying to browse the site hierarchy,” he observed. “Come on, come on, what are you all waiting for?”

  Feeling that a pharmacy site would be safe place to start without attracting Snape’s attention any further, Harry started on the Superdrug website. The results were baffling. Ron looked over his shoulder and sniggered again. “Sweet Snuggles set of 3 lip balms! Were you looking for something, err, special Harry?”

  Snape swooped down on them. “Inevitably Potter,” he spat, “you’ve managed to start looking on a site that doesn’t maintain its search dictionary synonyms and stemming properly.” Disdainfully he removed the apostrophe, changing men’s to mens, tapped the screen, and shampoos magically appeared.

  “What opportunities does that give us, Mr Malfoy?”

  “As a brand, we could influence the static link from the term men’s shampoo to jump to a page pre-filtered for our brand, sir,” replied Malfoy with a cunning look.

  “We could indeed, Mr Malfoy. Ten points to Slytherin. What else do we notice?”

Hermione’s hand shot up again. “No one?” demanded Snape, deliberately not glancing at her.

  “The products are listed in alphabetic order,” squealed Hermione.

  “I don’t remember asking you to speak, Miss Grainger. However this is indeed the case.”

  “What does that mean, Mr Malfoy?”

  “That you’re pretty unhappy if you you’re Toni & Guy, sir?”

  “Another ten points to Slytherin. Indeed you are. Well over 50% of add-to-carts from brand-agnostic customers will come from items listed in the first row of products in response to a generic search term.”

  “So these other brands should be trying to get Superdrug to change its default sort-order then sir?”

  “They should indeed. ‘Relevance’ or ‘top-sellers’ are more reasonable defaults. Possibly better still they could arrange for a product-placement at the top of this page.”

  “You mean kind of like on Asda?” asked Ron, who had been experimenting on his tablet.

  “Idiot boy,” snarled Snape. “Can’t you see they just aren’t managing their search properly? That isn’t a placement, it’s an opportunity. For what, Mr Malfoy?”

  “To include the words ‘Mens Shampoo’ in our product title, sir?”

  “Ten points to Slytherin. Exactly, Mr Malfoy. This site-search appears to only take the words in the product title as a literal term. Only this particular product in their range includes the two successive words ‘men shampoo’ in its title,” observed Snape.

  “So if we want to increase sales on Asda, we just get our product titles amended sir?”

  “Indeed we do. Shall we see how that might turn out, Mr Potter?”

  “Where sir?” asked Harry, very confused. Hermione’s hand shot up again.

  “Take a look at the Tesco grocery site everybody,” replied Snape, ignoring her as usual.

  “Here’s how it should work,” resumed Snape. “You will observe that any product that includes the word men and the word shampoo in its product title is appearing in the results.”

  “How does it decide what comes top then?” demanded Ron.

  “That information, Mr Weasley, is known only to the retailer. Unless, of course, Mr Malfoy…?”

  “We ask them, sir?”

  “Ten points to Slytherin. Indeed Mr Malfoy. We ask them. What do we ask them, Mr Potter?”

  “Errr, what generic search terms consumers use on their site and what factors apart from the words appearing in the product title drive the results-ranking, sir?”

  “It seems you are finally learning something in my classes, Mr Potter,” sneered Snape. “How do you think this one works then?” With a swipe of his hand, Snape showed the Boots site.

  “By magic, sir?” hazarded Harry.

  “Tut tut – fame clearly isn’t everything.”

  Harry tried not to look at Malfoy who was shaking with laughter.

  “As you can all see,” continued Snape loudly over the noises of Slytherin mirth, “retailer site search is an area that the skilled and cunning brand can manipulate to its advantage with surprisingly little effort. Some simple adjustments to absolute basics such as product data, combined with speaking to the retailer about a few specifics such as static links, can drive a significant sales uplift.”

  “For homework tonight, I want each of you to select a retailer website and brand, use this tool to benchmark it”

  “Bring three scrolls of parchment suggesting how you could make some simple adjustments to ensure your chosen brand features more prominently on the retailer’s site than its close competitors.”

A Nation of Shopkeepers? A Guide to International and Cross-Border e-Commerce

On Thursday last week, I presented at IMRG's excellent cross-border ecommerce event.

IMRG, sponsored by Borderfree, commissioned me to write a detailed "how to do it" guide to trading internationally via ecommerce especially for the event (and made a lovely job of the graphic design too!):

The output is this 48-page in-depth guide to using e-commerce to sell your products to international customers. It's available to download by clicking on the picture.

The emphasis of the paper is on being a detailed, practical, "how to do it" guide. As well as being packed with facts and data, it also includes a dozen detailed checklists for developing a project plan, as well as many essential frameworks to help decide how, when, where, and of course whether international e-commerce could be a successful route-to-market for your brand.

Sherlock Holmes and the Case of the Brands Abused on Retailers’ Websites

"I am afraid, Watson, that I shall have to go," said Holmes, as we sat down together to our breakfast one morning.

“Go! Where to?”

 “To Dartmoor; to King's Pyland.”

“Then you will certainly need a new suitcase,” I replied.

“By Jove, Watson, you’re right. Here, take my tablet and search online for one. I have some small tasks I need to do in town before we depart for Dartmoor”.

And so I began my research. It soon seemed to me, however, that this was no easy matter. It was straightforward enough to locate the suitcase category on some retailers’ websites. But beyond there, the suitcases started to spin in front of me. No sooner had I focussed on one, than another, often apparently unrelated to the first, was suggested to me. In short, I was little further forward when Holmes burst back in through the door.

“I have solved the suitcase, Watson!” he cried. “Samsonite, red, 55cm, 4 wheels. The problem was a simple one.”

I was forced to confess that my surfing had not been so fruitful. As I stated to Holmes, I began my browsing on the John Lewis site.

“But the brand you chose yourself was not even proposed to me on this website,” I asserted firmly.

“Ah, Watson,” chuckled Holmes indulgently. “You see, but you do not observe! Surely it must have been obvious to you that you should have used this very small scroll bar lurking in the brand filter, scrolled down to those brands hidden beneath the filter mini-fold, and then, deducing that those small numbers in brackets represented the size of the range and remembering all the similar bracketed numbers higher up the list but now invisible after you scrolled down, observed that Samsonite, although ranked only as the 13th brand on the overall list due to alphabetic ordering, had the largest number of products on offer?”

I admitted that it had not, and that finding the brand-selection on this site somewhat dispiriting, I had instead proceeded to House of Fraser. There, however, I encountered a quite different problem.

“No sooner had I focussed on one brand,” I complained, “then the website tried to steer me to another.”

The smile faded from Holmes’ face. He took back the tablet, and tapped the screen repeatedly. His countenance took on a grim aspect.

“Here, Watson”, he said, showing me some photographs he had taken earlier, “is how the brands are displayed in the House of Fraser store.”

“Observe how every brand has its own display area in the store, with the product attractively merchandised to attract potential shoppers.”

 “See here, for example, how even a quite minor brand can win a place in the sun by being well-presented in the store.”

“And yet on these websites, any customer who pauses to look at one of their products is immediately steered towards a competitor.”

I felt a thrill of horror pass through me. “What is it, Holmes? What terrible monster is merchandising so beautifully in store, and yet abusing these respected brands online in this fashion?” I whispered.

“Indeed, in the age of the ROPO customer, it is doubly dreadful!” he responded.

“ROPO?”

“Research Online Purchase Offline. Some estimates put the percentage of in-store customers who behave this way as high as 87%,” he replied.

“There is one final test to perform,” he resumed. “Let us undertake this merchandising benchmarking scorecard.”

We entered our details into it, answered some few dozen multiple-choice questions, and studied the results together. My eye was immediately drawn to the headline percentage score, which did not seem so bad to me, but Holmes’ quicker intelligence was already scrutinising the detailed results further down the page.

“It’s as I thought,” he cried. “This benchmark is the final proof I was seeking.”

“What then is it, Holmes? What is the monster?”

“It is a feral recommendation-engine,” he replied sombrely. “When trained and regularly monitored, they help retailers to drive sales. But if allowed to run wild and unchecked, they become abusive and dangerous, obsessed with cross-selling brands over to their competitors.”

I must have look confused, for he continued, “the brand on retailer merchandising benchmark enumerates 16 different ways in which merchandising on retailers’ websites can be harmful to brands. Wild recommendation-engines are merely one such, albeit one of the most dangerous. Others include weak search-indexing, low category ranking, unmoderated reviews, inaccurate product descriptions, lousy photography…”

“What, then, would you advise brands to do?” I interrupted, as an understanding of the problem began to dawn on me.

“Elementary, my dear Watson! Just take as much interest in the merchandising of their products on retailers’ websites as they do of the merchandising in brick-and-mortar stores. The benchmark is merely a starting point of course, but it can help direct their initial review into the right areas. It’s part of understanding that Digital Transformation for brands needs to go far beyond just online marketing and social networking activities.”

So ended one of the darkest cases of Sherlock Holmes’ illustrious career. And yet, as he said, it proved to be only a beginning, and a long digital transformation struggle lies ahead for many brands to optimise their online partnership with their retailers as well as they have previously done so in-store so many years before. Fortunately, help is at hand.

Visualising how fast is online retail in China *really* growing?

I've been doing some onsite engagements with a client in China in the last few months. Last time I visited, I managed to forget the power cable for my laptop. So my client very kindly ordered me a replacement online from JD.com, which arrived within 3 hours of the order being placed... OK Shanghai probably isn't representative of China as a whole (although JD says this service is available in 30 cities, total population > 300 million people!), but the impression you get of ecommerce while you're out there is fairly staggering. Certainly I've never seen so many people browsing their mobiles in one place as on the Shanghai metro, and every other advertising hoarding seemed to be for a retail website of some kind.

I've seen lots of graphs showing ecommerce growth in China, and separate graphs showing ecommerce growth in western countries, but I haven't really seen anything that puts the two in some sort of context. As I'm doing some research for the next edition of The Multichannel Retail Handbook at the moment, I happen to have been able to take the opportunity to set UK and Chinese official statistics side by side.

And here's the picture:

Roughly summarised:

1. Chinese retail as a whole is growing roughly as quickly as online retail in the UK. (CAGR of ~15%)

2. Chinese online retail is growing 4x faster than UK online retail (CAGR of ~60%)

Impressive stuff, a nice to see the on-the-ground impression confirmed in a side-by-side comparison. You can draw your own conclusions about whether China, despite its apparent recent economic wobble, is an interesting place to target online for retailers.

Data sources: UK Office of National Statistics, National Bureau of Statistics of China

Incidentally since the graph is inevitably a bit squeezed out for the slower growing lines, here's the same data with a logarithmic scale:

Back on stream

This blog has been neglected for a while, for the basic reason that I seem to have picked up more than my fair share of assignments that have required the creation of lengthy documents of various kinds. I've discovered that I appear to have a maximum quota for the quantity of reasonably intelligent words I can write in given period.

Oh yes, plus I've been moving house: you've probably done it, and you probably know that even a straightforward house-move (which ours certainly was not!) is impossibly energy draining.

Anyway, hopefully I'm back on stream with something at least moderately interesting to say. In the meantime, my post about UK click-and-collect penetration seems to have got picked up by several sites and I've even had a request to include the graph in a textbook. That particular post accounts for well over half the visitors to this blog, so I must have found something interesting to say at least once before...

Wholesale in an Online World now available to download from IMRG's website

You can find my whitepaper "Wholesale in an Online World" available to download now at this link:

Wholesale in an Online World

Wholesale in an Online World

I've written a Whitepaper for IMRG , sponsored by Maginus , entitled "Winning in Wholesale in an Online World".

You can find it here

It takes a look at what Wholesalers in particular, and B2B players in general, need to do to succeed online. For those familiar with B2C eCommerce, the B2B eCommerce world can be a surprising place!

On the other hand for those B2B players still stuck in the "pre-eCommerce dark-ages", it seeks to dispel myths such as "our customers aren't ready", and help the management team depicted in the cartoon below decide what to do next!

As always in anything to do with the online world, starting by picturing their customers is probably the best idea:

Tesco says Halo

In a previous post I took a look a whether the so-called "multi-channel halo effect" is real or not. The proposition of the halo effect is rather simple:

Argument A: Angels with Halos
1. your multi-channel customers can be proven to spend more - in total across all channels - than single channel customers
2. therefore being multi-channel increases overall sales, because your customers will spend more

The trouble with this logic is that it assumes that correlation implies causality. The whole argument can be turned around:

Argument B: Cannibals
1. your best customers spend more with you
2. these same best customers are more likely to want to reach you via multiple channels
3. if you don't offer these additional channels, they'll go somewhere else

In this logic, it's still a good idea to be multi-channel, but it isn't really increasing sales, just preventing falling sales. Or put more succinctly, cannibalising yourself is preferable to being cannibalised by someone else.

In fact in some countries and/or verticals - probably most - the argument can be taken one step further:

Argument C: Cannibals with Halos
1. richer customers spend more
2. richer customers are more likely to have access to the internet, and/or to own multiple devices for accessing the internet - smart-phone, tablet, laptop, home PC, office PC etc
3. therefore customers who spend more are more likely to be multi-channel customers
4. if you don't offer these additional channels, they'll go somewhere else

Now, buried in Tesco's February strategy presentation to analysts ("Winning in the New Era of Retail" - I'd post the link to the PDF if I could find it again on the website. Fortunately I downloaded it at the time), they present the following interesting data:

The black figures are mine, and are obtained by the not terribly scientific approach of counting the height in pixels of the bars, so you should be wary of treating them as exact data measurements: the point is in the general trend, not the precision. (Tesco says it measured 2M clubcard customers, so the sample size is pretty impressive!).

So which Argument does this actually support? There's a confusing bubble attached to the right-most column on the original slide that says: "similar growth across all affluences", but the way this is presented implies not that richer and poorer customers behave the same way when it comes to the halo effect, but that Tesco is seeing growth in the number of multichannel customers across the spectrum of affluence i.e. that a higher percentage of its customers now sit in that right-hand bar in every demographic. Nevertheless it could just about be possible to stretch this to imply that 'Argument C: Cannibals with Halos' is not supported by Tesco's data.

Digressing for a moment, the problem for Tesco is that their figures say that only 4% of its customers do actually sit in the right-hand bar, and that this has grown by 17% YoY: so following the logic through, 17% of 4% of customers have increased spending from an index of 2.04 to 2.98 (=46%). When you do the maths, that represents around a 0.3% increase in overall sales - not bad if you are as big as Tesco, but not exactly an overwhelming endorsement of the Halo Effect.

It's much more difficult to dismiss 'Argument B: Cannibals' or sustain 'Argument A: Angels with Halos' on the basis of this data. Online Grocery by definition is skewed towards more affluent customers. There's a delivery charge, which OK if you are careful and accept your delivery at inconvenient times, you can minimise. (Currently click-and-collect is on promo so is free, but the standard charge is £2). And you need a front-door so if you live on the top floor of a tower-block it's less likely you'll be using the delivery service. Moreover grocery shopping, of course, is unlike other shopping. Many online grocery shoppers will order their bulky/heavy regular staples online, and then go buy fresh or top-up in a store.

What the data probably most effectively shows is the value of Clubcard, in two ways. Firstly someone who shops online at Tesco is more likely to choose Tesco for their offline shopping too, and vice versa. You can't help feeling all those loyalty points have something to do with that. Secondly and far more importantly, Clubcard lets them measure and present this kind of data to analyse, tracking their customers effectively across all their channels, something that is otherwise notoriously difficult to do.

Unfortunately the graphs also show one more thing: a very small bar in the top RH corner for their non-food online...

C.O.D. - Care of the Devil?

Speaking about International eCommerce

International eCommerce seems to be a hot topic right now. Retailers, and most especially Brands, who have invested in their online capabilities for their domestic market, see an opportunity to leverage this investment by extending their offer to the whole world. I presented recently on this subject at at RBTE Expo 2014 at Earls Court (as well as being on the panels at eCommerce Futures in both London and New York) and I plan to use it as the basis of another short series of posts.

It's always rather challenging trying to select material from such a broad subject in order to fit into a short presentation. At RBTE I was given a longer-than-usual 30 minute slot (typically the best/longest slots inevitably go to the sponsors of course!) which gave me a chance to cover a wider range of areas than usual. What's always particularly interesting about speaking at these events is to see which topics or slides get the strongest reaction from the audience.

And then last week I had the opportunity to work onsite with a client in Kiev Ukraine, a consumer electronics retailer interested in learning the lessons from Amazon vs BestBuy / Amazon vs Currys history to make sure that they don't go the way of Comet. Online retail in the Ukraine is probably around 8-10 years behind the UK or US, which creates lots of opportunities for them to study the mistakes western retailers made in failing to adapt fast enough and avoid repeating them. (And yes, although Amazon are not in Ukraine, local online pure-plays are trying to learn lessons from Amazon themselves and make sure the local brick-and-mortar players make the same mistakes as Comet did...)

Cash on Delivery

What's been particularly fascinating about having these experiences close together was that the same slide got the strongest reaction at both events - this one, about the percentage of eCommerce transactions that are completed in cash. 

My Ukrainian clients found it difficult to believe that so many UK consumers would be prepared to pay for goods in such large numbers before physically seeing them, even from reputable retailers. By contrast: yes, UK and US readers, that means actual folding money handed over on the doorstep.

For western retailers thinking about trying to sell into say Russia, Romania or Ukraine, this presents some interesting issues. On the one hand there actually some advantages to transacting in cash. For one thing, the checkout - normally the most complex part of a website - is rather simple. You just get some basic contact details from the customer, telephone them to sort out delivery (oh yes, this is also standard practice by the way, so start employing some more local language speakers than you planned just for after-sales calls) and that's it. No messing around with multi-step checkouts and all those complicated "what happens if they press the back-button" type questions.

On the other hand - quite apart from the challenge of handling cash anyway - your entire after-sale standard operating procedures, and probably your finance policies, are going to need a rewrite. The problem, simply stated, is that the sale takes place spread over time. If you take credit card payments, then the payment, stock movement, general ledger posting and GAAP compliant booking of the sale are more or less simultaneous. And if there's a problem with the order during shipping, your call-centre knows it needs to cancel/refund the payment: 

By comparison, paying on delivery smears this transaction across time. And now if there's a problem during shipping, then no refund is needed. But of course, if your customer decides not to be at home, or doesn't like the goods on the doorstep, then you just took all that shipping cost and received no money for it.

German retailers, of course, have dealt with this complexity from the get-go. Here's a screenshot taken from www.idealo.de, a German price comparison site:

"Nachnahme" - cash on delivery - with its inherently higher risk of non-completion of the order, is going to cost you a a good bit more than paying upfront. Notice that they really don't want you to pay by expensive (for the retailer) methods like credit card either. Cash up-front or bank-transfer up-front please!

Coda

I'm writing this on 12th April 2014, and of course the situation might change. But I'd like to just take the opportunity to quote from an email invitation (I'm sure the author won't mind) I've just received to do another piece of consulting for a different client in Kiev:

"P.S. Perhaps a helpful note, given the increased media attention to Ukraine these days: Kiev, the capital, is peaceful and safe, despite popular protests in the east of the country."

Since I was there myself at the time I received this particular email, I could see for myself whether this was true. And it was. A little bizarrely the centre of the protests in Independence Square has become a tourist attraction with former protesters selling souvenirs such as spent bullets:

And Kiev really is a beautiful city, especially as the exchange rate has just improved by 50% due to all the uncertainty:

Grocery click and collect article

Well I was about to publish an article for this blog about click and collect grocery when someone rang up and offered to pay me to do exactly the same thing as I was already doing for their magazine...


So of course I sold out :-)


Here's the outline link, although you'll find you have to subscribe to their magazine to see the actual article. I guess at a safe distance in time they'll open up the link.


http://www.esmmagazine.com/201403302354/Technology/ESM-Magazine-The-Technology-Issue.html

Amazon 10K 2013 - a profitable services company with a loss-making retailer attached? Amazon through the looking glass.

Another year, another Amazon 10k, another conjuring trick

So Amazon have published their annual report (10K) for 2013. I've looked in previous posts at some of the numbers and trends, especially their ongoing treatment of "free shipping" type offers as a marketing expense.

As usual, they confuse the data by presenting shipping as a percentage of total revenue instead of only applicable revenue (i.e. by including services such as AWS, instead of excluding them and looking only at product sales fulfilled by Amazon). Once you strip out the obfuscation, then shipping income has risen in 2011-2013 from 3.7% of sales to 5.5% of sales: a pretty hefty 37% hike over 2 years. Shipping costs, meanwhile have risen from 9.5% of sales to 10.9% of sales (a huge number). Net shipping costs, after a dip last year, have stayed constant 2011-2013 at 5.8% of sales.

Just to put these numbers into context, the cost of subsidising shipping has come down from 49% larger than the marketing budget to a mere 12% larger than the marketing budget.

Where it all gets a bit more interesting is when you start to strip out the effects of shipping and consider Amazon as a retailer of products only i.e. exclude their services. According to their 10K, "product sales represent revenue from sales of products and related shipping fees". So presumably, deduct the shipping fees and you find out what their true product-only sales are.

Similarly, cost of sales apparently includes shipping fees, so we should strip these out to get to actual "product" figures only. If we do this, we end up with gross profits of $10.26Bn on sales of $57.81Bn, or a gross margin of 17.7%.

Look no margins!

The first thing to note is that this is significantly less than the 27.2% mentioned in the 10K, although to be fair they do point out that gross margin is not a particularly sensible way to measure their overall business. No it isn't, but it is a fair way to measure their business purely as a retailer.

The second thing to note, is that these figures are gross margins: they exclude variable (i.e. non-fixed) operating costs. Being very kind and treating marketing, I.T., content and admin costs all as fixed costs, then we are left with the costs of fulfilment as a variable operating cost.

What happens then when we try to calculate an operating margin excluding services and (temporarily) excluding shipping fees and income: operating margins on product sales suddenly look quite sick: 6.4% in 2011, 4.4% in 2012, and a mere 2.9% in 2013. Wafer thin in other words. Once you figure in net shipping costs (fees minus costs) of 6.1% it all starts to look a bit sick.

It's all rather "Amazon-through-the-looking-glass". Suddenly we see a loss-making (and barely break-even prior to 2013) retailer effectively acting as the traffic-driving operation for a very profitable marketplace and services business.

One day, when they finally get big... NOT

And before the standard cry of "wait until they reach their full scale" goes up, then I should point out that this excludes anything that might be considered a cost that reduces with scale. It's all directly variable costs - shipping, fulfilment, cost-of-goods on which scale has no effect at all.

What then is the biggest threat to Amazon? No it isn't BestBuy getting their act together, it's eBay (and its equivalents in other markets such as Allegro, Rakuten and TaoBao) getting theirs together instead. If you really want to scare the life out of Amazon, open a marketplace with half their fees. Because their retail operation isn't the part that makes the profits, it's just their visitor source.

No wonder the BestBuy's of this world have a few problems. They're up against a retailer that  isn't particularly interested in making a profit from their retail operations!

Summertime at Tesco? Next time I'll leave my bikini at home...

These pictures seem to sum up what's gone wrong for Tesco somehow...

I'm doing an assignment near Wellingborough Tesco Extra, and decided to grab breakfast on the way by. And here is their welcoming carpark.

Having ignored the sign, found somewhere to park, and then hurried across the carpark in a bitter cold wind, here is what it says at the entrance:

Damn it, next time I'll leave my bikini top at home then.

OK, I know this strictly has nothing to do with multichannel. What I actually intended to do was photograph the grocery collection area (which does have quite a lot to do with multichannel and I was going to use in a blog post), but somehow I got distracted. Maybe it's all a cunning plan to increase sales - I will now have to make another visit to that store to take the photo I had originally planned.

Little brother is watching you

Concluding my brief series looking at how multichannel demands changes to the traditional retail organisation, something a little bit more future-facing. “Big Data” is a pretty topical term right now; lots of organisations are working to exploit the trail left by the ROBO customer (Research Online Buy Offline and/or Research Offline Buy Online).

 

Often these initiatives are dressed up for customers with nice phrases like “we treat every customer as an individual” which of course really means “we’re collecting as much data as we can about you so that we can work out what else we could sell you.” The rise and rise of the smart-phone aka personal tracking system is helping play a big part in that; if you’re on a boring journey one day, try passing the time by going through the apps on your mobile and see what each of them has permission to access – contact lists, call and messaging histories, location data and so forth. And to be fair, making it easier for customers to find things relevant to them (in whatever way – purchase patterns, nearby locations) is probably good for customers too.

Slightly below the radar (or so it seems right now), various governments, especially in Europe, are taking an interest in this. Not in the Edward Snowden NSA snooping way, but in a more constructive citizenship-aiding way. The UK government's Midata initiative is one such. It aims at “giving consumers access to the data created through their … internet transactions and high street loyalty cards.”

 According to the Department for Business, Innovation & Skills website:

“midata will allow consumers greater insight into their everyday consumption and lifestyle habits by using applications and intermediaries to analyse their actual behaviours and thereby empower them to make better spending choices and secure the best deals.”

Or so the UK consumer minister says.

 

Roughly (one of) its ideas is to get companies to subscribe the data they collect about their customers to a personal data store for that customer, and make the data available in ways that are helpful to the customer. So for example a Tesco clubcard holder could find out how much they spend on fresh produce compared to pre-processed food each year, or on branded versus unbranded goods.

 

The idea extends further in that this data repository should be under the control of the customer, and should allow that individual to consolidate data from different sources, for example bank statements, clubcard data and utility bills in a way that helps give them insight into their own lives. "If I spend less on gas keeping the house warm, do I use up all the savings boiling the kettle and consuming tea-bags, milk and sugar?"

 

Taking it one step further again, the customer should be able to make part of that data publicly available, at their discretion and under their control.

Why is that helpful and what does this mean for retailers (or for that matter anybody that sells online)? Well the most interesting application for the future is the idea that, instead of customers having to come looking for you, you’ll go looking for customers. As a customer I can, in effect, put my business out for tender, along with whatever consolidated data (from all possible footprint sources that subscribe to the service) I choose to release publicly from my “Midata store” in order to help the potential vendors match my need as closely as possible.

“I’d like to buy insulation, or maybe solar panels, and here are my recent electricity and gas bills plus some outline idea of my general spending-power and preference for quality” is a sample concept.

It’s a potentially alarming (for some!) paradigm shift in retailing. And it’s happening now: Midata is already a legislative reality. It's even got a logo, so it must be serious...