The new requirements for businesses to survive online

Websites owners face growing problems: increasing competition in the offering and the presence of vertically focused online giants (think for example Amazon for retail or Booking.com in travel). Combined with more savviness from web users that don’t hesitate to shop around for the best deal you have the recipe for a complex business problem where few are really successful and few can sustain their competitive advantage over time.

Advertisers have traditionally used tried and trusted solutions to grow their business and stay ahead of the competition: spend more to drive traffic because at the end of the day “No’one ever got fired for increasing SEM spend”.

Maybe.

A recent study by Cap Gemini Retail shows that on average, websites convert just 3.8% of their visitors (source: IMRG Cap Gemini Retail Sales Index).

Beyond driving more traffic, smart marketers understand that increasing the conversion rate on a website increases the profits in a disproportionate manner, increasing the online conversion rate by five percent (from 3.8%) to 3.99% would generate a turnover for the UK e-commerce market in excess of 70% of the total amount spent on traffic acquisition.

This is a bottom line increase of 3.4bn [based on 2011 figures of 4.8Bn spent on (SEM and display advertising)]

We’re only talking about a 5% increase, not 15% or 20%. This is a staggering figure and that certainly raises questions amongst executives. During my past four year (as Sales Manager within Google), I’ve repeatedly heard “Traffic is too expensive, I need to improve my conversion rate”. There are basically two ways of doing so: 1) driving better traffic and 2) make the website more effective at converting visitors.

Few years down the line after A/B testing went mainstream and ad targeting became more and more sophisticated, websites still convert poorly. 3.8% of visitors - that’s the hard fact.

Why is it that people who seemed interested enough to click on a link and spend some of their time on your website are not converting? Can something be done or have we reached the limits of what the internet can deliver for ecommerce and other e-businesses? How can businesses turn this Zero Moment of Truth, this special moment when a shopper goes online to research a product, into a conversion? (if you haven’t heard of ZMOT, then I strongly suggest you read Google’s post and download the starter kit).

At CANDDi we believe there’s a lot to be done. And evidence shows we’re not the only ones.

Content relevance is king

Qualified traffic is important, no argument here. But looking at what has been going on over the past two to three years, on can tell that the new battle for survival is around content relevance.

Increased relevance means visitors find value in what you have to offer. They will keep returning on your website to use your services because they find what they are looking for. You are not necessarily winning over cheaper price or better ad, but over convenience and simplicity offered to the visitor because the experience is relevant to them. Personalisation has been around for some time but more than ever it is now bringing a real competitive advantage in a maturing market.

Three obvious examples:

1. Amazon based his core advantage on having the largest choice available on the planet, but also in understanding what you are interested in and showing you personalised recommendations.
2. Facebook’s 1 billion users gives it a huge advantage over other sites, because they have to be logged on the device they’re using. It means that at core of their business model they know who’s behind the device at all times and can push relevant content for you as an individual, first in the news feed for your social life, but also in advertising. And now we learn Facebook is going into search based on information fed by its users.
3. Google, the company that built itself on organizing the world’s information, realised that search results for the same query should be very different between two different people. They have been using geolocation, language settings and other clever algorithms for ages but they realised some years ago that they needed more. They need to know who is behind the computer to move away from a “one size fits all” best guess to results tailored for each individual. Hence their strategy shifted to ensure everyone had strong incentives to be logged on at all times across devices (Android, Google+, Gmail, Youtube…).

Beyond their core businesses, these three companies have launched an Ad Exchange, no wonder why - Amazon has the largest database of shopping history at individual level, Google has the largest database of search interest, ad clicks and web browsing at visitor level, and Facebook has the largest database of social interests and people connected to each other. Personalisation is not only about product recommendation. It’s about understanding what matters to someone and when is the good time to interact.

Hyper relevance, the era of personalisation

Today’s challenge is for relevance, and this happens by knowing the most about your visitors, by gathering the more information on a user to treat him as an individual.

We’re talking about showing the most appropriate content based on deep understanding of the individual based on his behavior and expressed interests. We’re not talking about carefully A/B tested generic pages, we’re talking about understanding what matters to a given individual. For example at CANDDi we capture all the interactions with the website, for example from how the user sorted the products to what he added or removed from the basket. This allows to understand purchase intent beyond simply products viewed.

The ability to place the right information in front of the right people at the right time means unmatched levels of targeting and huge earning potential for early adopters. Criteo, a well known remarketing company, claim they increased conversion rates by 500% on average by displaying the right ad in front of the right person.

Again, some companies have understood this and set relevance as their core advantage. Relevance is not only for traffic acquisition, it’s for displaying what matters to individuals at the right time. It can be product recommendation, but also variations on the content displayed with the products. In the latter category, the New York Times pointed out in December 2012 some examples of companies outside of the travel industry doing dynamic pricing.

If such extreme examples could alienate people, the general public is becoming more and more ready for personal tracking and product recommendation: a recent research by Accenture show that ? of UK and US surveyed web users responded they accepted tracking because of the increased relevance.

We believe the future of the Internet lies in personalisation, in being able to provide to visitors the experience that appeals to them. Businesses that understand this early on will build high barriers to entry based on data, see bigger market share and higher conversion rates, translating into higher sales and higher profitability. This means finally that 3.8% conversion rate is just the limit reached today with current old fashioned practices. A limit worsening year after year due to greater choice and lack of differentiation. It’s however a limit that is set to be pushed back with hyper relevance.

**“Relevance is a key part of the new consumer experience. It’s a new requirement” **

Glen Hartman, global managing director of digital consulting at Accenture Interactive

And you, where do you stand?

Frederic Abrard - 5th February 2013