Encouraging your customers to buy more items and spend more money each time they shop is a proven method to boost revenue and profitability. Brick-and-mortar retailers have perfected the practice over the years, based on the marketing concept of the ‘halo effect’. The halo effect is the bias shown by customers towards certain products because of a favorable experience with other products made by the same brand, or sold in the same store, where the favorite item was originally purchased. For years retailers have used the halo effect to measure, quantify and profit from brand equity.
Halo Effect In The Digital Commerce Ecosystem
E-commerce professionals are constantly looking for proven merchandising and other methods to take advantage of the halo effect online. The best measure of success for these efforts is Average Order Value (AOV). The simplest way to calculate AOV is:
Some of the ways AOV can help your marketing efforts include:
- giving you a measure for ROI on your marketing budget
- helping you identify customer buying habits
- providing you with another performance indicator for your online marketing and
- allowing you to improve segmentation and targeting
Another important reason to focus on increasing AOV is the customer acquisition costs. In many e-commerce segments ‘demand-generation’ costs are rising due to higher costs for SEO, ad-words marketing and more competition in general. On the other hand programs to increase AOV often bring more revenue at a lower cost.
Besides the obvious techniques like cross-selling and up-selling, here are some actionable strategies we have found to increase your AOV.
Product bundling makes buying multiple items at once easy. Often these are groups of products around a primary product and its accessories, or groups of products used for a similar purpose.
Fashion and apparel retailers can take it a step further and offer “Shop This Look” pages that offer a lot of flexibility and ideas.
Tea Collection uses Upshot Commerce promotion tools to create successful “Shop This Look” product bundle pages.
This is a great technique to increase AOV and also helps personalize the shopping experience. While bundles can be discounted to encourage customers to buy, they don’t always have to be. The convenience to have the items pre-packaged together is often sufficient to entice shoppers to buy.
In order to increase the effect of bundling, make sure you test different bundling/pricing strategies against a control group. Another best practice would be to target different bundles at different customer segments. Your goal is to determine which options will give you the best conversion and revenue results.
Active User Segmentation
Active Segmentation of the visitors of your online store is a powerful way to provide personalized experience, which in turn has direct impact on AOV. Depending on the platform capabilities, an e-commerce manager can build and modify segments of site visitors and direct them to the appropriate categories, landing pages, promotions, or personalized recommendations.
Using the powerful Upshot Commerce segmentation tool merchandisers can build a number of active segments based on amount of money spent previously, referral source (search referrer, social media, marketing referrer, etc.), actions like – visit certain category or product page, add item to shopping cart, share item on social, etc.
When the goal is to make customers spend more, a proven method is to use loyalty programs and incentives.
Here is how Freshtrends leverages the Upshot Commerce toolkit to offer a comprehensive rewards program with loyalty points, incentives and discounts for registered shoppers.
Personalization and Recommendations
Shoppers usually respond well when presented with products that meet their needs. The more relevant the product offers, the more likely they will buy more thus increasing the AOV.
Personalization – this is about marketing 1-on-1. Merchants can take the Active Segmentation from #2 above and use the information to further create an online experience tailored to the individual shopper. Even just a simple, personalized welcome message with your customer’s name can go a long way. More sophisticated, personalized promotions with customer-specific landing pages that feature a specially selected product catalog can be very effective.
Recommendations – online shoppers often take advantage when offered help selecting products. As a merchant you can use information you’ve collected about your customers to help recommend products for them.
Ergobaby helps parent choose the right carrier for their newborns.
Easy and/or Free Returns
One of the biggest barriers to buying online remains the concern customers have about whether or not they can return the items they purchase if something is not right.
When customers think that returning an item will be costly or difficult, they will buy fewer items. However, research has demonstrated that if returns are free – the more items customers buy, the more they actually keep. Customers don’t return more items when the process is easy or free, they just want to know that easy returns are available, before they buy.
Tier-Based Free Shipping, Coupons and BOGO Promotions
Another relatively easy way to encourage higher AOV is to set up tier-based free shipping as in “Free shipping on orders over $100”. The effect can be even more powerful when you combine this offering with coupons and BOGO (Buy-one-get-one-free) promotions.
The National Gallery of Art offers 20% off orders $100+ with a coupon code Gallery20:
The Bottom Line: Simplify and Personalize Wherever Possible
Customers want to buy more, and will buy more—if you make the shopping experience easy, relevant and personal to them. To achieve that – improve and refine the use of product bundles and active user segmentation, deploy a full customer rewards and loyalty program and focus the recommendations to help your customers’ anticipated needs. Also – implement easy and free returns where possible; leverage tiered free shipping and maximize BOGO type campaigns. All of these will help you increase your AOV numbers.