Growth Insights for CEOs

The Four Basic Pillars of Digital Economics

Posted by The Chief Outsider

The four pillars that deliver significant increases in sales.For many companies in both the B2C and B2B markets, selling online is a must. Whether selling digital goods like downloadable software, SaaS-model subscription offerings or actual physical goods, in my experience there are a few straight forward and basic economic pillars of selling online that are often overlooked. While your products, pricing and promotions are important, I’ve seen that a renewed focus on the intersection of these four pillars delivers significant increases in sales.  These pillars are:

                       • Traffic
                       • Close rate
                       • Average order value (AOV)
                       • Retention

Let’s start with traffic and close rate — and the conversion of desire to action, to purchase a good online. While traffic can vary greatly, your close rates need not. Focusing on the purchase process, if you remove hurdles such as difficult order forms, currency issues, languages or payment types, merchants can increase closure rates and significantly boost revenue streams. This is especially important when selling globally, as you want to cater to many different audiences across the world. With the right products, this can be a great addition to your revenue. It’s been found that advanced techniques such as single-click buying and user-experience tuning or shipping incentives can impact the bottom line. With 80% of shopping carts still being abandoned during the online shopping experience, traffic alone is no guarantee of success.  

Maximizing the average order value (AOV) per consumer conversion results in greater success as well. Online merchants need to ensure they do not miss any opportunity to turn a browser into a buyer by connecting with the buyer when his or her wallet is open and they are eager to buy. The best way for merchants to do this is to learn more about what makes their buyers tick. When do they shop online? Who do they primarily shop for — themselves? A spouse? Friend? By understanding the shopper, and taking steps to address his or her needs, online merchants can take advantage of shoppers’ time and convert the sale. Offering an added value during the checkout process or appealing to an impulse purchase simply adds revenue to your bottom line. 

The last step, retention, is not as easily factored and measured, but holds just as great an impact as the previous factors within this equation when it comes to digital commerce.   Retention is the key to growth. Keep your old customers — and grow with the addition of new ones. It is nearly an urban myth that the costs to acquire new customers can run five to ten times more than the costs to retain them. Truthfully, these costs will vary by industry, product and company strategy, and are impacted by the rise and fall of economic cycles as much as anything. But, many implications can be drawn from this simple definition: Customer retention is built on retaining the customer without the need for a change of heart or mind (and thus the customer becomes loyal). Retention comes from providing incentives for the customer to return (and restrained from leaving) in the face of competitive actions. Reward the faithful by creating a retention benefit program that recognizes repeat customers. Today’s most effective perks programs do not involve much financial investment, however, every little bit of appreciation shown to the customer pays dividends. It’s important that once the initial transaction is conducted, the merchant continues to evolve the relationship with that buyer, developing a business transaction into an emotional bond.

Putting it all together, to successfully digitally monetize here is the basic recipe for converting browsers into buyers. In simplified mathematical terms, the model can be defined as:

(R)evenue = (A)verageOrderValue x (C)loseRate x (T)raffic.   ( R=A x C x T )

In the digital commerce world, any business can flex its marketing strengths to drive online revenues. There are many techniques, but simply by using pre– and post–sale promotions to increase AOV, multivariate testing on the checkout page to improve your close rate and a direct consumer management experience to build traffic from your existing customer base, merchants will build higher Total Lifetime Value from their customers and grow their revenues.

Topics: Digital Marketing Tactics, Internet Marketing, Data Matters in Marketing