In the $600 billion e-commerce industry, 60 percent of all transactions end in abandonment-largely because online shoppers are bargain-hunters. A recent survey conducted by PayPal and comScore reports that nearly 30 percent of shoppers abandon their carts in order to compare prices at other Web sites. However, some online merchants are putting the brakes on shopping-cart abandonment by offering the most appealing deals on the Web-through the use of compelling purchase incentives.
What makes a good purchase incentive?
A successful purchase incentive creates a change in customers' behavior by offering something else that they want for free or at a substantially lower price along with their original purchase. Imagine a customer is driving down a major highway and is about to exit for an Italian restaurant. But he sees on a billboard advertisement that a similarly priced Italian restaurant at the next exit will give away a free dessert with the purchase of an entrée. If both restaurants offer the same food at the same price, the customer will surely pass the first restaurant by in favor of a free dessert with his meal.
A purchase incentive can be anything-free shipping, a discounted rate, a free or sample product, a gift certificate or a valuable coupon-as long as it is compelling enough to cause a reaction. Successful incentive marketing will not only increase average order values and reduce shopping-cart abandonment, but it will also ensure customer loyalty by increasing customer satisfaction. When shoppers are rewarded for making a purchase, they are much more likely to become repeat customers.
How are purchase incentives used?
In the software industry, purchase incentives are often implemented when customers abandon their transactions. Pop-ups appear with an offer of a free product or a sizeable discount to encourage customers to resume the checkout process. And countless online retailers use free shipping as a purchase incentive to increase average order values. For example, Amazon.com's Super Saver Shipping program offers free shipping for transactions greater than $25. This purchase incentive ensures that customers spending $20 will almost always spend an additional $5-and often much more-to qualify for free shipping.
It's also very common for companies to adopt the bundling idea behind value meals at fast food restaurants to upsell complementary products. Grouping two or more products together at a discounted rate creates an incentive for customers to buy their original item, plus one or more products that they hadn't initially intended on buying-which increases conversions and boosts average order values.
Purchase incentives from external sites
A company that offers its own purchase incentive is restricted almost exclusively to discounts or free shipping. However, online retailers aren't limited to the same four walls of a brick-and-mortar store. They are intrinsically linked by the Internet to all other industries and can cross-promote any other company or product on their site-which leads to fantastic opportunities for implementing purchase incentives from external sources.
Supplying a purchase incentive to another merchant's traffic is a powerful marketing tool that increases sales and provides valuable advertising exposure. For example, a customer may be more likely to pay for an online newspaper subscription if it came with, say, a $100 coupon from a vacation package company. The company would gladly give away the coupon knowing that new, high-quality customers will use to it purchase a vacation package worth $600 or more. And even if the coupons aren't redeemed, the company benefits from having its brand exposed to millions of the online newspaper's high-quality customers at the point of purchase.
By implementing purchase incentives from external sources, an online company, such as a dating service, can leverage incentives from other industries, such as a DVD rental service, in order to increase conversions. Or complementary companies can create a purchase incentive by bundling their products together at a discounted rate in order to increase sales and gain access to new traffic streams. For example, a company selling movie tickets, a flower delivery company, and a restaurant could market a "first-date" bundle that offers special pricing for roses, dinner, and a movie. All three companies would sell the package on their Web sites and split the profit, hence tripling their sales platforms.
The general idea of purchase incentives has been around for a long time, but the online use of external purchase incentives indicates the emergence of a new marketing arm, and a growing industry. Companies can reach beyond the limits of the products they sell by offering other merchants' purchase incentives. Some ad-supported payment platforms maintain a network of purchase incentives for companies that want to boost sales and increase new customer acquisitions. Based on the early success of this model, thousands of online retailers across many industries are realizing that it's a cost-effective and easy way to optimize the sales cycle-and put an end to shopping cart abandonment.
About the Author
Alex Rampell (firstname.lastname@example.org) is the cofounder and CEO of TrialPay, a provider of online payment solutions and specialist in transactional advertising such as purchase incentives, coupons, cross-selling, and bundling. For more information, visit www.trialpay.com.
[For more on CRM amid the economic downturn, see the February 2009 edition of CRM magazine, The Recession Issue.]
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