Are You Taking Too Many Orders Online?
I was involved in a discussion recently where the CFO of a catalog company was pleased that his company now took 80 percent of all orders online. He talked about how much money his company was saving, as processing online orders cost about a third of phone orders. I then politely asked him how overall sales were. He said bad and blamed it on the recession.
I then asked this catalog CFO if he saw a difference between online and phone orders. Was the average order value the same? Were lines per order and units per order similar? He said online buyers were "price shoppers" and naturally spent less, about 30 percent less.
Was the return rate the same? It was slightly higher for online orders. Was the customer lifetime value of online vs. phone customers the same? He said that was hard to measure. Was the retention of online and offline buyers different? He didn't know.
The CFO's answers to these questions were less than certain. His incremental gross product margin, by the way, was approximately 80 percent. I'm sure by now you see what the overbearing financial focus was doing to results. With such high incremental gross product margin, a relatively small, $10 increase in AOV can make a big difference.
I politely suggested the following considerations to this CFO, and I suggest them to you now.
- Study the AOV, lines per order and units per order differentials between Web and phone orders. If you see a significant differential, test calling Web orderers to confirm, and upsell them.
- Study customer development of online vs. offline buyers. How soon and how often do they place second orders? What are their respective one-, two- and three-year values?
- Examine any return rate differentials between online and offline customers.
- If you sell consumable items, study what percentage of sales on those items is done online vs. offline. (Reorders of consumable products do lend themselves to online orders, more so than nonconsumable products.)
- If you see value in increasing the percentage of phone orders, start thinking about how to shift more orders to the phone where experienced agents can upsell, cross-sell and deliver the human customer experience to ensure customer retention. (Another cataloger recently told me it dropped the 800 number from the bottom of each catalog page in an effort to drive more orders online — jeesh!)
E-mail me if you have a success story with these issues in your business. I'd like to hear it.