E-commerce has changed the way consumers purchase products, but until very recently, the basic structure of the transaction and sale itself hadn’t evolved much: People browse for products they want, compare prices across sites, maybe submit a code for a discount coupon if they have one and make a purchase. But a recent development points to a big change on the horizon for ecommerce, and the symptom is the massive sales growth achieved by major retailers who have embraced the new model.
The new model is already being used today by top retailers like Sears. It bridges the gap between online and physical interactions, empowers consumers to take a more active role in transactions, leverages psychological principles to optimize sales and the user experience and revolutionizes the concept of discounts. The new model offers consumers a novel choice: the opportunity to negotiate with a leading retailer.
In modern Western societies, negotiating isn’t a typical component of consumer purchases outside of yard sales and flea markets. Bargain hunters might like to have the opportunity to ask a retail giant if the store would be willing to accept less than the asking price of an item. But outside of specialized bidding sites, most online consumers don’t attempt to haggle, nor do brick-and-mortar store visitors. The prospect of bidding for the price of a refrigerator at a store like Sears was, until recently, unthinkable for traditional consumers.
Now large retailers like Sears and other leading companies in Europe are using a sophisticated platform that allows users to make an offer on products – while ensuring that the companies maximize their profits. The platform takes into account how consumers arrived at the site, the items they viewed, their shopping cart activities, the profit margin on viewed items and a number of other factors and gives consumers a “Make an Offer” button as well as a visual representation of the likelihood that a given offer would be accepted.
This technique bridges the gap between the physical and online worlds in unique ways. First, it genuinely engages consumers in a personalized interaction, allowing them to overcome the “cultural taboo” of negotiating with retail giants. Secondly, it gives retailers the ability to achieve up to 30% increases in sales with bullet-proof profitability built right in – and the sales growth is demonstrably a symptom of the retailer’s new engagement strategy.
One reason negotiating works from the retailer’s perspective is that people are generally more motivated to guard against losses than to pursue gains. When retailers give them a single chance to make an offer – along with graphics that convey a sliding-scale likelihood of success – the consumer is more likely to place a higher offer to secure the discount. This creates a win for both parties: The retailer gains a sale at a reasonable profit, and buyers get a chance to bid on an item for a discounted price at a top retailer’s website.
Another huge benefit this approach offers to retailers is the opportunity to revisit the discount concept, which hasn’t changed much since Coca-Cola rolled out the first coupon in 1887 to boost sales of its new soft drink product. Coupons are generally a static commodity, but a tailored discount offered to individual site visitors can enable merchants to make adjustments automatically – and communicate with site visitors in real time. That means retailers aren’t cannibalizing the profits for customers who intended to make a purchase without a discount.
When the first tech bubble burst around the turn of the century, one of the primary causes was the lack of valid metrics to gauge a site’s success. Early ecommerce sites could measure “eyeballs” – the number of people who had viewed the site – but it was difficult to measure conversions from views to sales, let alone collect data on what drove the visit and sale (or lack thereof). Another tech bubble formed around metrics that enabled a basic level of interaction – “likes” and similar, quantifiable actions, but again, the lack of insight into sales efficiency undermined investor confidence in that model as well.
The new negotiating approach to ecommerce that has already been adopted by Sears and other leading retailers has the hallmarks of a sea change, not a bubble. It delivers valuable metrics and enables retailers to ensure they maintain healthy profit margins. It consistently drives higher conversion rates, and it gives customers the permission to actively engage to secure a discount. That’s why a negotiating function on major retailer sites has the power to transform an industry.
Noam Javits is CEO of netotiate.com.