While Amazon.com continues to dominate e-commerce, a report from Gartner suggests that its core business is slowing, with legacy retailers building up their own e-commerce operations. Like Amazon, successful online retailers are focusing on increasing average revenue per unit (ARPU) as a competitive strategy, not just to establish themselves in the online commerce space but also to flourish.
In 2017, according to Statista, U.S. e-commerce ARPU was $1,749. That figure is expected to grow to nearly $2,600 in 2022. Now, with new marketing tools available such as artificial intelligence (AI) personalization and content and commerce solutions, online retailers have even more opportunity to increase ARPU and go head-to-head with Amazon.
How AI Personalization Helps Increase ARPU
AI-powered personalization creates dynamic digital experiences that consumers crave. In fact, Accenture’s 13th annual Accenture Strategy Global Consumer Pulse Research report found that 43 percent of U.S. consumers are more likely to make purchases with companies that personalize experiences, and 31 percent report finding great value in services that automatically learn about their needs to personalize recommendations. Meanwhile, 41 percent of consumers switched companies over a lack of trust and poor personalization, costing businesses $756 billion.
According to analyst firm Ovum, “AI systems have access to a wealth of data and can analyze it to enable marketers to make better decisions. AI solutions can combine first-party and third-party data to better understand customers’ needs, preferences and interests. AI algorithms can combine historic patterns and behavior (plus “look alike” patterns) with ongoing, real-time engagement to provide the right next best action to the customer at the right time and in the right context of their journey. The outcome for the consumer will be recommendations and offers that are personalized, well-targeted and relevant.”
The result? An increase in revenues and ARPU.
In fact, AI-driven personalization can boost revenue with the right product recommendations at the right time. For example, you can increase user retention and session length by inserting data-driven product, content and email recommendations at critical touchpoints and drop-offs. Furthermore, you can use an AI-powered recommendations engine to optimize for goals such as “maximize conversions per user” or “maximize purchases” by showing similar, popular, high-grossing or related products. Personalized recommendations can also be automatically created based on viewing history, prior behavior, real-time intent and more.
One example of the impact of personalized recommendations comes from The North Face. The outdoor retailer developed a Q&A-style chatbot called Expert Personal Shopper, or XPS. The tool walks users through a series of questions, then offers personalized product recommendations based on their responses and preferences. The questions focus on where, when and how they may use a particular piece of clothing. Based on inputs that include customer responses as well as external data such as weather forecasts, the tool narrows down a customer’s product search to just six options, arranged in order of best match. This ends up saving the customer from looking at hundreds of jackets, many of which might not even meet their needs.
The AI tool for The North Face is still in its testing stage, but early results suggest revenue growth on the horizon. According to Emerj, the pilot program resulted in a 60 percent clickthrough rate and 75 percent total sales conversions.
The return on investment benefits from personalization aren’t just limited to ARPU. A guide on the ROI of personalization illustrates how:
- Sephora achieved a 6X return on investment;
- Lamoda drove $15M gross uplift;
- Sabon increased sales by 35 percent during Black Friday weekend;
- Jewelry.com increased ARPU from the homepage by 39 percent;
- BILD Shop realized a 5X ROI from a single use case; and
- Juniqe increased SEM campaign revenue by 20 percent.
Differentiation by Personalization
Today’s retail environment is competitive, with companies such as Amazon that routinely out-price competitors while giving consumers more and more innovative ways to do business with them. What you can do to differentiate from the pack and drive premium pricing is deliver the kinds of experiences consumers are looking for — personalized, content-rich touchpoints that drive brand loyalty, increased spending and, ultimately, higher ARPU.
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