February 28, 2008, 12:00 AM

10 tips for employing live chat profitably

Knowing how and when to invite a customer to chat and which customers to chat with can turn live chat from a customer service convenience into a sales-generating tool.

Baffled as to what to buy her boyfriend, Annabel accepted an invitation to chat while browsing the web site of Ted Baker, a UK apparel retailer. She soon was typing messages back and forth with Dominique, who introduced herself as “one of Ted’s Personal Shopping Assistants.”

Dominique suggested a belt, pointing out it was 100% leather, or a wallet, which she noted had a coin pocket and space for nine plastic cards, used the live chat connection to send Annabel links to product pages and helped close the sale.

Exchanges like this one, which took place during the holiday season, are convincing a growing number of online retailers that live chat can boost conversion rates.

“Live chat has one of the highest conversion rates of all our channels,” says Brad Wolansky, vice president of e-commerce at Orvis, a multi-channel outdoor gear and apparel retailer. “Particularly when someone doesn’t know what they want, it has the highest conversion rate of anything.” He says customers who chat convert 15% to 20% of the time, roughly triple the rate of e-mail.

One reason for chat’s effectiveness is that a chat agent can use the live connection to a customer to send links to web pages, something a phone agent can’t do. 80% of the information customers are looking for is available on the retailer’s site, says David Lowy, director of best practices consulting at Talisma Corp., a provider of chat technology. In many cases, the customer just needs a little help to find it.

Chat can offer that help, and its use is increasing at a modest pace. In a recent survey of 100 top Internet retailers, 32% offered live chat, up from 29% in the previous year’s study by The E-Tailing Group. Once viewed primarily as a less expensive customer service alternative to the telephone-since a chat agent can handle more than one exchange at a time-increasingly retailers view it as a way to boost sales.

But retailers must use chat judiciously, as they pay for every minute of an agent’s time. Increasingly, e-retailers use analytics data to maximize the profitability of chat. Making good use of data is at the heart of several of the tips that follow about how to make live chat pay off.

1. Know when to offer a chat

Orvis invites customers to chat only when they are on certain pages, such as customer service. “We have a lot of stuff on the customer service page,” Wolansky says. “If 15 seconds go by and you’re still on that page, you’re probably looking for something and haven’t found it.”

Orvis also offers chat to customers lingering on the checkout page. But Orvis does not offer chat on product pages, where visitors may linger reading reviews, examining photos, watching videos and comparing products. “Sitting there for a long time is not an indication you have a problem,” Wolansky says. “I don’t want to bother you.”

With the help of web analytics, retailers can map out the typical paths taken by customers who buy, and identify deviations that indicate a visitor is likely to leave, says Kevin Kohn, executive vice president of marketing at chat provider LivePerson Inc. If a lot of visitors abandon after two minutes on a particular page, he says “when someone’s there for a minute, 45 seconds, it’s not a bad idea to reach out offering assistance.”

2. Offer chat to profitable customers

Retailers can set rules so that they offer chat only to customers who have made purchases of a certain amount in the past year, identifying them by cookies placed in their browsers, says Ashu Roy, chairman and CEO of chat technology provider eGain Communications Corp.

Retailers can also segment customers by how they come to the site, Roy says. For instance, a visitor who arrives by clicking on an ad on the Wall Street Journal’s web site might well have money to spend.

Home Depot, which rolled out chat last year, uses mainly proactive chat, in part to keep down agent costs, and only in certain lines of business. “Customers generally need assistance in making decisions on high-value, complex products. Appliances are a very good example,” says Yaron Yaniv, senior program manager, customer relationship management, at Home Depot.

Products must have a substantial gross dollar margin to justify the added cost of chat, says Bernard Louvat, CEO of inQ Inc., which offers hosted proactive chat. He says an item must as a rule have at least a 30% margin and be fairly high-priced. “A $10 item won’t justify chat,” he says.

InQ charges only when the chat results in a sale, taking roughly 10% of the sales price, Louvat says. Other outsourcers charge by agent time. Retailers that handle chat in-house have to consider the cost of software, agent time and management time.

A chat might cost a retailer on average $4 to $6, says Lowy of Talisma. Outsourcer 24-7 INtouch charges between 40 cents and 55 cents per minute of chat time, based on volume.

3. Don’t offer chat to unprofitable customers

Agent time is money, and retailers should not waste time on customers they can’t sell to. The web site of the UK’s Ted Baker does not sell to U.S. visitors, and thus does not offer them chat, says Martin Newman, head of e-commerce. The geographical location of the customer can be detected by the IP address.

A retailer might also want to exclude visitors from a competitor’s web domain, or from universities or research firms, figuring they are probably not shoppers, says Kohn of LivePerson. “If there’s a portion of people you’ll never sell to, take those off the table,” he says.

4. Make invitations relevant and personal

If a customer is looking at appliances on the Home Depot site, Yaniv says, the chat invitation might read like this: “Hello, my name is Yaron. I’m a Home Depot specialist. Are there any questions I can assist you with today?”

The invitation box at Orvis lets customers shape the conversation, giving them the choice of chatting with an expert in fishing, hunting and shooting, other products or customer service.

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