Success in online sales has become a high-stakes game. On one hand, the volume of business transacted online continues to grow at a breakneck pace while it has been getting exponentially harder to connect with would-be customers.
The statistics are staggering. According to recent Statista Market Outlook reports, the global transaction value of digital payments is as follows:
- 2020: $5.2 trillion
- 2021: $6.68 trillion by year end (forecast)
- From 2020 through 2025, transaction value will likely grow 16.3% in Europe, 15.2% in the U.S., and 11.2% in China.
According to eMarketer estimates, worldwide retail ecommerce sales are as follows:
- 2020: $4.28 trillion — 27.6% growth rate from 2019
- 2024: $6.39 trillion (forecast) — 21.8% of total retail sales, up from 13.8% in 2019
These statistics demonstrate just how much commerce is now done online, but it also masks that overall conversion rates are very low and getting worse. In fact, statistics at every step of the sales funnel show that retailers can only capture a very small portion of the total available market. There are lots of reasons why drop-off rates are high in online sales, but there are three key trends that retailers need to consider now if they intend to stay relevant and improve their market share.
1. Connect customer acquisition to customer experience workflows.
Most retailers approach the need to grow their sales with two distinct and often quite separate workflows. First, get more visitors to their site through customer acquisition tactics. Second, deliver a better customer experience (CX). The separation of these two efforts is the primary reason why achieving growth is so challenging.
2. Digital ad spend is growing fast.
The chaotic nature of online retail has resulted in a battle to drive traffic to websites by spending more and more on digital ads and pay-per-click (PPC). According to eMarketer (https://www.emarketer.com/content/us-digital-ad-spending-2021), in the U.S. alone, ad spend is expected to increase 25.5% by the end of 2021, and in the UK, 74.8% of total media spend is already digital (Google has 39.6% and Facebook 28.9%).
In the race for customer acquisition, typical retailers build hundreds of landing pages and funnels to better connect with different customer segments. There are entire teams dedicated to customer acquisition workflows and building campaigns. But these efforts are not driving better conversion rates.
3. Conversions are getting worse.
Despite the efforts toward driving more visitors to their sites, the global averages show that 43.8% of visitors make it to a product page in the first place, 14.5% end up adding an item to the shopping cart, and a paltry 2.27% convert. All these statistics have been on the decline compared to 2019 (https://www.growcode.com/blog/ecommerce-conversion-rate/).
It is important to understand the scope of this problem by using real numbers for a prototypical e-commerce site:
- Unique visitors per month: 250,000
- Average order value: $100
- Potential monthly revenue: $25 million
- Expected monthly revenue at 2.27%: $567,000
This exemplifies the reality faced by most retailers. Out of a potential $25 million in monthly revenue, one is lucky to get $567,000. And the answer for most retailers is to continue to try and drive more traffic by spending even more on ads.
A far more effective approach is to tightly connect the customer acquisition efforts to CX. This means that the teams responsible for both workflows of a retailer’s efforts need to work together. They need to have a singular focus on improving CX to drive a better return on marketing spend by generating more successful outcomes.
Optimize in Real Time Every Step of the Funnel
As the funnel statistics show, a retailer must look at the entire journey and focus on each step. Every retailer has different challenges, and only a holistic approach to full-funnel optimization can help drive meaningful results. This is where artificial intelligence (AI) comes in and can profoundly impact improving CX. AI-driven optimizations offer a different approach by continuously working to find the best digital CX.
It starts by identifying the KPIs that a brand needs to achieve, and using real traffic from live visitors and customers to experiment with different experiences. The AI uses learnings from the last visitor to inform the experience for the next one. With AI, the next visitor can have a CX served in real time, based on actual successes observed with real customers. This proven method reduces friction and inspires action that goes way above a 2.27% conversion rate.
Personalize the Entire Customer Journey
The next evolution for retailers is to deliver a truly personalized CX, which is quickly becoming an expectation from consumers. Personalization is still coming into focus but hangs on the promise of serving a contextual and relevant journey to each visitor, and the key to making that a reality is understanding the visitor’s intent.
Today, many personalization efforts focus on demographics such as sex, race, marital status and age. These parameters are not especially useful in understanding what a visitor is looking to accomplish. AI can understand patterns and recognize intent as a visitor starts their unique journey through a site. The same capabilities that allow optimization in real time can be applied to serve a unique CX that connects with the visitor’s desired outcome. This has a profound impact on customer engagement and satisfaction, resulting in much higher conversion rates and loyal customers that come back.
Go Beyond Third-Party Cookies Today
As personalization becomes the next hill to climb, the industry’s shift away from third-party cookies seems to create a paradox. While Google just delayed its deadline to 2023, third-party cookies are going away, and that is OK! Demographics data generated from browser history and sold by social media and search engine companies amounts to highly generalized assumptions about customer behavior. As discussed under personalization, this data has very limited value.
What is far more relevant and still available after third-party cookies go away is behavioral data gathered when visitors interact on a website. AI uses this data to understand why customers do what they do online, which is much more insightful and enables a more empathic CX. Retailers need to move away from third-party cookies now and embrace new techniques and data types that offer useful insights to optimize and personalize the experience for every visitor directly.
2020 was a challenging year for retailers, but it accelerated ecommerce by five to 10 years. Retailers need to embrace the shift to online sales and continue to innovate their CX using AI to continuously optimize and personalize at scale. This is now key to ensuring they can deliver the experience their customers deserve.
Michael Scharff is the CEO and co-founder of Evolv AI, an AI-driven solution for digital growth optimization that serves the best experience to each audience every time.