August 22, 2013, 3:25 PM

Retailers: Don't judge success on smartphones by conversion rate

Smartphone browsing gives retailers "net new minutes," a mobile expert says.

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Web retailing executives have long relied on conversion rates—the percentage of visits that result in a purchase—to determine the success of their e-commerce sites. As e-commerce matured, conversion rates increased. Ultimately, more traffic meant more money.

"If a site converted at 2%, an increase in traffic guaranteed an increase in revenue," says Alex Muller, co‐founder and CEO of mobile commerce site and app builder GPShopper in a report entitled "The Rise of the Net New Minute (and the Paradox of Conversion Rate Statistics)." "The math, reduced to a simple metric, easily justified billions in Internet marketing dollars and successfully launched a myriad of e‐commerce marketing tools, ranging from contextual marketing to e-mail marketing to affiliate marketing to search marketing."

But the same cannot be said for m-commerce sites and mobile apps for smartphones. After years of m-commerce, smartphone conversion rates for many retailers remain stuck below 1% even while smartphone traffic soars. Retailers generally have not been able to get smartphone conversion rates on par with desktop conversion rates. (Many retailers report tablet conversion rates close to desktop conversion rates. 

"To understand what is taking place, we must first admit that we are observing the emergence of a new digital behavior," Muller says. "It’s not the at‐home or at‐work PC behavior that we’re accustomed to–mobile devices are generating a distinct behavior that adds net new minutes of traffic. This is because the behavior is characterized by billions of 'micro sessions' that take place throughout the day and peak around the evening commute."

These "micro sessions" occur when smartphone users whip out their devices while commuting on the train, waiting for an elevator, sitting at a restaurant, sitting in the passenger seat of a car, watching TV, or waiting for a child's practice to end.

"The question many brands may be asking is if a lower conversion rate is a problem. The answer, perhaps surprisingly, is no," Muller says. "As mobile professionals have surely noticed, providing a high‐quality mobile experience via web or app will generate a significant number of net new minutes. These visits, however, shouldn’t be judged using previously relied upon tools. The minutes were not paid for–they’re not, for instance, keywords purchased from Google AdWords. In general, app visits are initiated by direct consumer entry and thus have a significantly lower cost structure." 

If a consumer can access a web site from a PC or tablet, why is she bothering to access that site from her smartphone? The reason usually falls into one of three categories, Muller notes.

First, urgency. When a consumer requires a product or information immediately, she often turns to mobile. Flash sale retailers are particularly successful in mobile commerce. Consumers have a limited time to get products at particular times of the day. Consumers are often not near their desktops and use their smartphones to access the sales.

Second, seeking information and showrooming. The consumer is on the verge of purchasing an item in‐store and wants final confirmation that the price is satisfactory, reviews are favorable, and the product is worth buying, Muller says. For anyone looking at cart abandonment metrics, it may be surprising to realize that many consumers might complete purchases initiated on their smartphones on their PCs, creating an abandoned cart on a mobile device and very quick conversion on their PC. Brands need to avoid the mistake of blaming the mobile commerce experience for this occurrence–it’s a natural progression in the path to purchase, Muller says. In fact, if not for the mobile initiation, the final conversion may not have taken place, he adds.

And third, passing time and "pre‐shopping." "We all pass a great deal of time on our smartphones," Muller says. "Most loyal and passionate consumers do as well. This 'time passing' is likely to account for the majority of new emerging mobile minutes. It’s both very easy and fairly subtle to pass time by browsing sites and using apps on a smartphone. Unfortunately, this is also the behavior that ruins the precious conversion rate metric."

These visits were never intended to be purchase visits for the vast majority of consumers; however, they offer an unprecedented opportunity for retailers, Muller says. They provide a chance to showcase products, to drive an impulse purchase, to profile consumers and to compel a future purchase (online or, even more likely, in‐store), he says.

"The bottom line is that brands should embrace this new behavior–these net new minutes essentially equate to nearly cost‐free engagement," Muller says. "Retailers are not losing actual purchases, despite the conversion rate drop, because they are increasing the denominator (visits) without reducing the numerator (purchases). Valuing these net new engagement minutes and learning what consumer interests are when in pre‐purchasing mode allows retailers to tailor marketing strategies to best suit their customers. Brands that embrace this behavior for the benefit of both their online and in‐store channels will outperform their competitors."

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