Features, Retail Insights, SAP

Pay Attention Retailers: Your Online and Offline Conversion Rates are Converging

RR conversion ratesIn retail’s new normal, the convergence of digital and physical is prevalent throughout the industry. From trends of smaller-format stores incorporating more digital components and carrying less inventory, to hyper-personalization, the retail landscape is continuing to evolve. Now is the time for an overhaul on the way retailers measure conversion rates.

There is a misbelief that conversion rates only answer the question, “Did someone go on my website and buy something?” – but they go far beyond that. Conversion rates are an overall measure of health for a retailer. It can be difficult to gauge a true measurement between e-commerce and in-store revenue, digital ad spend, brick-and-mortar square-footage costs, and more – there are numerous variables to consider. Enlisting agile technology can help provide these insights and centralize data, which in turn helps retailers with their ultimate goal – increasing overall conversion.

The Convergence of Conversion Rates

It’s important to measure online or foot traffic, but it’s also important to weight these measurements against each other. While e-commerce is increasingly seeing more traffic than brick-and-mortar stores, conversion rates for online shoppers are comparatively low. Many retailers strive to increase traffic online, but higher web traffic does not necessarily translate to more online purchases. The same can be said for brick and mortar, although the conversion rate is typically much higher for in-store foot traffic.

There are tools for measuring conversion rates online, and there are ways to measure the ROI on square footage for brick-and-mortar stores. Combining the two helps provide a holistic view of conversion, and with that view, retailers can analyze the data to determine opportunities for improvement across channels. Retailers need to reconcile the two measurements to truly understand conversion rates and create an omnichannel strategy accordingly, leveraging data, analytics, and technology.

Retail Space Must Provide Value

Let’s focus on in-store conversion rates for a moment. This may sound like common sense, but physical retail locations need to provide value in order to keep the doors open. The challenge lies in measuring the full value of each store.

Typical conversion rates for physical locations measure foot traffic and revenue against cost per square foot and other expenses, such as employee wages and technology, but digital convergence is changing this. The value of one physical retail location goes beyond its in-store revenue – cultivating shopper loyalty through a great experience should also be considered.

For example, some retailers are opening smaller concept stores, like Sephora. The beauty company is opening a series of concept stores less than half the size of a typical Sephora store, featuring digital components and customized makeovers. Many are also decreasing the amount of inventory, offering ship-to-home options or driving consumers online for ordering. Or, if you’re Nordstrom, the new concept locations don’t carry any clothing for sale in store.

Nordstrom is testing out a compact store with personal stylists to assist shoppers in selecting and ordering clothing, which can be delivered that same day. If consumers want to wait for the delivery, they can enjoy coffee or juice from the on-site bar or get their nails done. The first Nordstrom Local store in Hollywood is about 3,000 square feet, which is a big downsize from their typical size of 140,000-plus square feet.

These new store formats are putting the focus on customer experience, as they should – but they still need to pass the test of providing true value. Retailers can’t use their space to just serve coffee; they need to show conversion.

Measuring Online Success

Moving on to online conversion rates, let’s focus specifically on how technology allows retailers to centralize data and improve online buyer experiences.

By deploying a cloud solution to consolidate marketing platforms and create more efficient data exchange between systems, retailers will see online conversion rates increase. At the core of this strategy, organizations can develop complete consumer profiles to enhance engagement and campaigns, foster seamless shopping experiences, and make the overall buying process easier. The ability to consolidate consumer information from previous interactions and historic purchases is key – technology should empower businesses to more deeply understand consumers and engage with them intelligently.

According to a recent Forrester Consulting study, businesses who deployed this type of technology saw a higher return on investment (ROI) after just one year. While this specific example relates to B2B, this same type of technology strategy can be applied for retailers and brands selling to consumers. The study analyzed qualitative and financial information from a portion of the thousands of customers who run their websites with SAP Hybris solutions, finding that over a three-year period, a composite enterprise using commerce cloud solution reported a $15.9 million increase in net-new revenue and a 307 percent increase in ROI. And, thanks to integration across product areas, consumers could automate recurring orders, view their purchase history, and scan offerings recommended based on prior actions and purchases – resulting in a five percent increase in average order value.

These same concepts can be applied to in-store, allowing retailers to get that much-needed holistic view of conversion.

Connecting Online and Offline

The convergence of digital and physical retail may be more challenging in terms of measuring conversion rates, but retailers that invest in a robust omnichannel strategy with agile technology will find that it’s a huge opportunity for success.

Technology is helping to provide a more direct line of sight into what consumers respond to as they make purchase decisions, centralizing data to enable smarter decisions. This is the closed loop that retailers crave as they strive to attract and retain shoppers, especially with ever-increasing consumer expectations. For this reason, we’ll begin to see more retailers using holistic conversion rates as the new measurement for success.

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