SIMPLIFYING ECOMMERCE: KNOWING YOUR PRODUCTS AND CUSTOMERS

Ecommerce is simple. Dont let anyone trouble you with thoughts on mobile, social or personalization. The beating heart of ecommerce is the triangulation of data and uniting your best products with your best customers to make the most profit.

I think its worthwhile dwelling on this idea of knowing your products and customers ahead of anything else. Ultimately its the nub of your site design but also your marketing efforts including media spend.

As marketers start to join up data sources, they need to be wary of jumping the gun, trying to stitch up remarketing, social CRM, personalization, before theyve truly looked at optimising product mix and display.

Heres what Mike had to say

The concept of data triangulation

The concept of triangulation is nothing new or difficult.

We can define ecommerce simply as using a to put products in front of customers in order to generate profit.

Then if we look at sales in the light of the Pareto principle (or 80:20 rule) we can see that:

• 20% of customers account for 80% of sales.
• And 20% of products account for 80% of sales.

This means that 64% of sales come from top buyers purchasing top products.64522...0.000 In light of this generalisation, the concept of data triangulation is finding that sweet spot, knowing what best customers buy which best products to generate the most profit.

Of course, the long tail is important for a retailer like , with lots of customers and lots of products. But not every retailer has infinite shelf space.

The concept of ignoring the long tail customers in order to spend time on the most valuable is what Tim Ferriss expounded in his immensely popular book, The 4-Hour Work Week.

Mail order companies have for a long time been trying to master data triangulation, for obvious reasons. Nobody wants to send a 5 catalogue out to a customer that isnt interested, or indeed to print a catalogue with the wrong product mix in it.

With the advent of the web and the maturation of ecommerce there is now enough data at sufficient resolution to do something useful with it.

What are your best products?

1. Products clicked most often.
2. Products bought most often.
3. Products with the highest order revenue (thats total order revenue, not simply the product in question).
4. Products that encourage most return visits to your site.

Using the AIDA model of customer journeys (awareness, interest, decision, action) as illustrated below, we can give different definitions of best product depending on what stage the customer is at.

Click propensity - promoting off site

Which products should you promote away from your website (via display, paid search etc)? This is all about the awareness/interest stage of the customer journey.

Fairly obviously, one should promote products with high click propensity, or proportion of clicks to impressions, in order to attract as many new visitors as possible.

Purchase propensity - promoting on site

Which products should be prioritized in your merchandising?

Take a category page with 30 products showcased. We want to assess how each product performs against the null hypothesis of random clicks and random purchases, or an equal share of clicks and purchases for each product.

With 30 products the null hypothesis is 3.3% CTR, 3.3% purchase.

Mapping how often each product (in this case three completely hypothetical examples) is viewed and sold as a percentage of the null hypothesis can be visualized as follows:

Those products that are under-viewed and yet oversold are the ones to focus on. In Mikes words:

..adjust traffic flows through your site to match product-views with product-purchase-propensity.

Ensuring highest margin

Aside from focusing on highest purchase-propensity items, and factoring in total order value, there are other factors that affect profit.

Ensuring the highest margin is achieved involves looking at each products profit margins but also at the products return rate and any discounting that may in place.

That concludes this short and simplified version of finding your best products. Ill be following this up with finding your best customers so do stay tuned.