Brick-and-Mortar Retailers’ Secret Weapon: Conversion Rate Optimization
Given the difficult business conditions so many brick-and-mortar retailers are facing, it’s baffling that conversion rate optimization (CRO) hasn’t become more of a focus if not an obsession.
In the online world, CRO has become an industry onto itself, spawning a global community of consultants and service providers, formal methodologies and over a hundred books dedicated to the topic on Amazon alone. There is only one book on brick-and-mortar conversion listed on Amazon.
There are a number of factors that may be preventing CRO from taking hold with brick-and-mortar retailers, but just like online marketers discovered after the dot-com bust in the early 2000’s, focusing on conversion can not only help them survive, but even thrive despite traffic declines.
Tracking Conversion vs. Optimizing Conversion
Most major tier-one retailers today track traffic and conversion rates in all their stores, so the basic data needed to conduct CRO already exists. However, the variability in physical stores makes applying conversion improvement initiatives across stores consistently a challenge, and it also makes measuring results more challenging too.
Testing and Measurement to Prove Results
A vital tenant of CRO is testing and more specifically A/B testing. In the online world this is easily accomplished by setting up two variations of a webpage and then directing an equal amount of traffic to each site. But A/B testing is much more difficult for brick-and-mortar retailers since, unlike websites, every store is unique.
So unlike online conversion rate optimization where changes can easily be made and consistently applied with a few keystrokes, in brick-and-mortar stores adjusting variables like staff levels for example must be applied at the store-level.
There’s another important difference between online and brick-and-mortar conversion optimization tests: traffic. In an online experiment, traffic can be precisely controlled so each website version receives the same amount of traffic.
In brick-and-mortar stores, the amount of traffic each store receives can’t be controlled and can vary significantly by store. Extra care needs to be applied when interpreting brick-and-mortar conversion optimization test results.
But just because the conversion variables are harder to control in physical stores doesn’t mean that conversion rates can’t be optimized or measured using A/B testing.
Start with the Biggest Conversion Driver – People
An effective CRO system for brick-and-mortar retailers must begin with ensuring staff schedules are aligned to store traffic patterns. Second, retailers need to examine how staff are deployed – tasking versus servicing customers. Third, retailers need to measure associate and manager productivity by analyzing conversion rates by hour attributed to each employee.
Conversion Rate Optimization can Mitigate Traffic Declines
In today’s rapidly changing and difficult environment, brick-and-mortar retailers should focus on the traffic opportunities they do have and apply CRO strategies. Just like the online survivors of the dot-com bust, brick-and-mortar retailers need to realize that it’s not just about the amount of traffic in their stores, but what they do with the traffic that matters most.
Mark Ryski is author of "Conversion: The Last Great Retail Metric" and "When Retail Customers Count" and CEO and founder of HeadCount Corporation.
Surging online and customer traffic boost Target; ups remodels
Target Corp. came roaring back in its second quarter from a year-long sales slump amid evidence that its investments in online and store remodels are paying off. The discounter raised its outlook for the year.
Sales rose 1.6% to $16.43 billion in the quarter ended July 29, beating analysts' estimates of $16.30 billion. Same-store sales rose 1.3%, also more than analysts had expected. Comparable digital sales surged 32%.
Net income fell to $672 million, or $1.22 per share, from $680 million, or $1.16 per share, in the year-ago period. Excluding items, Target reported earnings of $1.23 per share, beating the average analyst estimate of $1.19.
On its quarterly call, Target gave an update on its store remodeling and new store plans. The retailer now plans to remodel more than 300 stores in 2018, up from its original 250.
Target also plans to nearly double the number of smaller-format stores it will open this year, with 15 new locations announced for 2018 and "more to come," CNBC reported.
Target announced its results on the heels of the news that it was acquiring technology transportation company Grand Junction, and that it was expanding its next-day delivery pilot, Target Restock.
In addition, Target is expanding its private label lines, and will launch two apparel brands, a home goods brand and an athleisure brand this fall. More are in the works.
In a statement, Target chairman and CEO said that the company was particularly pleased that second-quarter traffic increased more than 2%, reflecting growth in both its store and digital channels.
“We continue to focus on our long-term strategy, as we work to transform every part of our business and build an even better Target that will thrive in this new era in retail," Cornell said. "While our recent results are encouraging, we will continue to plan prudently as we invest in building our brands, our digital channel, the value we provide our guests and elevating service levels in our stores.”
For the full year, Target has forecast earning between $4.34 to $4.54 per share. Analysts had called for earnings per share of $4.39 in 2017, falling on the lower end of Target's updated range.
Getting Shoppers to Notice and Touch Products is Key to Purchase
Understanding in-store shopper behavior is key to designing environments that promote product purchase. But retailers must overcome numerous hurdles to get shoppers to notice a product, let alone buy it.
Toward that goal, we recently conducted research in six stores nationwide to identify shopper behavior patterns and generate insights into the retail experience. Mobile eye tracking headsets were employed to observe actual shopper behavior and to measure key levels of engagement at three stages:
1. Shopping Path/Track
3. Display Engagement
Shoppers were intercepted at the store entrance and asked to perform their intended shopping trip while wearing mobile eye tracking system. Before shopping, participants were surveyed about their intended trip and after shopping, they were surveyed about items purchased.
Shopping paths are largely driven by their primary destination category, which tends to create concentrated pathways through the store. As a result, most shoppers see only a small portion of in-store displays, and for just a brief time. The typical shopper notices some 30 displays, which represents approximately 12% of all the displays in a store; most notices are brief, at <1 second. Moreover, noticing a product does not guarantee that a shopper will buy it.
The research demonstrated that getting a customer to pick-up a product has the highest correlation with purchasing (30% of products held were purchased; purchasing increased to 60+% when more than one item was held). For most product categories, the longer a customer spends in a category space, the more likely they are to make a purchase. So the challenge for retailers is two-fold: how to get people to spend more time in the destination category, and how to encourage them to pick up, to touch a product.
How Shoppers Shop Shelves
Display viewing frequency is largely a matter of the path shoppers take through the store: If it is not on their path, they won’t see it. If it is on their path, they will notice it based on the time spent in that area, not on the density of the displays. In high traffic areas viewing will tend to be high, while viewing is low in low traffic areas. Since shoppers tend to focus on products displayed slightly below eye level, a retailer can alter this pattern by either mixing categories in bays or by incorporating value-sized packages in the same bay.
Highly noticed displays are not necessarily the best performing displays. Highly viewed displays toward the front of the store on the racetrack are noticed by 40% of shoppers passing. However, these displays have a product interaction rate of 0.4%, 1/10th the rate of lesser-viewed displays in the center of the store. Engagement is highest when the display is integrated with the adjacent aisle and products and is placed in the center of the store along the shopper ‘racetrack.’
Not Seen, Not Purchased
What researchers call fixating is the first step to purchase (obviously what is not seen is not bought). The good news is that more half (56%) of shoppers that hold a product will purchase a product in that category. Still, high-fixation, or notice rates, does not necessarily translate into high rates of purchase for many categories. We found that fixating leads to the purchase of: packaged cheese, carbonated soft drink, and packaged bread, but does not promote the purchase of: prepackaged fruit snacks, candy, household cleaners, or pasta.
As with categories, engagement with displays, rather than merely viewing, is essential for purchase. Highly noticed displays are not necessarily the best performing displays. Highly viewed displays toward front of store on racetrack are noticed by nearly one-half (40%) of shoppers who pass by, however, these displays have a product interaction rate of 0.4%, 1/10th the rate of lesser-viewed displays in the center of the store
Implications for Retailers
As the shoppers near checkout, unplanned purchasing drops off dramatically with shoppers still seeing displays but failing to act. Rather than trying to capture the last few unplanned purchases at checkout, it would be wise to research how improving the shopping conclusion experience can increase return trips, which will more favorably impact store sales.
Various tactics can be employed to enable retailers to provide a positive shopping experience at the last moment. For retailers lacking a destination category, creating a destination category could lead to increased shopper visit frequency. For retailers with a destination category, the destination category should require shoppers to traverse a large portion of the store.
In addition, the path to the destination category should pass by impulse purchase or high value categories, such as pharmacy and health and beauty. Where possible, a category should be oriented horizontally, with as limited vertical spread as possible. For larger categories, place value packages lower so shoppers looking for the value items will search lower shelves, and other shoppers will focus on higher price per unit products placed in the center shelves.
Engage Shoppers to Hold Products
Rather than make the primary objective driving attention to the category, the primary objective should be to engage customers that do pay attention as engagement will increase time in category and increase the number of products held. Engagement can be promoted by the use of interactive displays (mechanical & electronic), on-pack promotions, integrated displays and store staff suggesting products, which wind up in shoppers’ hands.
High value displays should be placed in high traffic areas, whereas in low traffic areas, take a low effort approach and do not change displays as frequently. Use display space for way finding, to provide information, or assistance to shoppers. In a low traffic area, where the shopper is likely looking for something specific that is not obviously in other locations, help them find it.
Given the limited number of displays that an individual shopper sees, and the limited time allocated by shoppers to noticing displays, the goal of the display should be engagement over noticing. Engagement needs to be encouraged rapidly and communicated clearly to the shopper. One way to achieve engagement is through the use of custom displays placed along the racetrack in the center of the store, as they are most likely to generate incremental sales.
Retailers of all stripes face tough challenges today from online to specialty to pop-up competitors. If a retailer hopes to maximize his environment, he must first thoroughly understand how people shop and then reconfigure the retail space to accommodate shoppers’ habits and preferences. The good news is that new research tools are now available to provide the necessary insights to create successful retail experiences.