Running a start up is not an easy job, we all know it very well and the most crucial part of any business is getting customers for your product. When you are an internet start up, the primary channel of acquiring a customer is digital marketing. But does digital marketing really helps?
Promotions through different channels like article marketing, PPC ads, social media marketing, online press release etc are some of the parts of digital marketing. Digital marketing is costly like any other marketing activity and the question comes in of ROMI (Return on Marketing Investment).
To share a bird’s eye view on conversion rate of major online ecommerce stores like amazon.com, jabong.com, Flipkart.com or alibaba.com it ranges from 0.78 to 3 %! If your eye brows are still not up and your jaws have not dropped then probably you are in wrong industry! Question comes why should you be surprised by these low conversion rate? Taking the example of 3% conversion rate for an ecommerce store it means out of 100 people visiting a website only 3 people have actually bought something.
Let me further go into detail. Average purchase of a online buyer is around Rs 500-1200 per person but the COCA (cost of customer acquisition) is around Rs 1500-2000 which means on an average ecommerce websites are losing Rs. 800 per customer.
In business it is said that if you lose some money it is considered as investment for acquiring a customer who remains with you for a longer period of time because from recurring purchases you can not only recover the initial loss but also start earning profit may be from 3 or 4th purchase however what happens with ecommerce stores is due to intense competition of acquiring more customers at any rate, ecommerce stores are giving huge discounts further hurting their bottom line!
And even after spending so much money the lifetime value or loyalty of a customer is no guarantee because there are high chances that today customer A has purchased from you because of a special offer, but tomorrow if another ecommerce website comes up with a better offer , they will purchase from the other website which means the investment ( or loss ) an ecommerce website incurred to get customer A on their website has gone wrong and there are very low chances of getting it back.
I am sure by now you understand why these big ecommerce stores needs billions of dollars in funding and still they are not making any profit till date ?
The reason of explaining the above scenario in detail is if you are running a start up in internet space you don’t have any option but to go for digital marketing but as we discussed marketing has high cost and low return on investment
So what is the way forward?
I am running a start up called – Skinsecrets.in – One can find the best spa, saloons, clinics and products on our site. This is of course our internet start up and pain point for us is also how to acquire customers online. I do not want to spend money on marketing unless it gives me decent return on investment or qualified lead which stays with me for longer period of time (I am sure every entrepreneur wishes that)
In recent past, I got chance to attend one of a very good start up event in Ahmedabad, which was organized by Head Start foundation in association with 10,000 start ups. The highlight of the event was talk by Prof P.K. Sinha, who is professor of marketing at IIM Ahmedabad and has experience of 20+ years in this field and is actively working with 20 start ups in India of a now.
One of the very good point he made was “to understand your consumer” or your target market ( male, female, age , geography ) and how respective target market behaves in real world and not virtual (on internet)
As an example, our business is about helping people find best spa and saloons. In our target market, majority of females go for spa treatment by getting information from friends or family and not by searching online.
Second part of our market is college going students or those who are still living off pocket money, but want to pamper themselves so these set of people search discounts and coupons of spa and saloons and then make deal. Essentially, we have two different target markets and two different ways they make deal or final purchase. To attract females who generally call to friends and family to find out about a new spa we have to focus on this behavior and integrate our marketing effort respectively and for second segment, we need to make special offers and discount available on our site so we can get their attention easily!
Taking another example of real world that is shopping mall. Do you know that the conversion rate of a shopping mall is around 11%. ! Again your eye brows should be up and jaws should be dropped! On an average a shopping mall witnesses thousands of footfalls, but still conversion remains low!
Compare these examples with the conversion rate of a medical store – It is 90- 96% on an average!! Wohoo..Now as a start up founder you wish you can make this happen to your business right? Of course right!
So why a medical store has such high conversion rate? I am sure you have guessed it right. You go to medical store only when you need medicine and not for window shopping right? But go back to the example of ecommerce websites and shopping malls. Majority of us surf websites daily looking for new things coming up, discounts and offers but not necessarily that we are going to make a purchase.
That means if you want to have a conversion rate as high as medical store understand what the point is when your target market makes final decision and how you can present yourself at that point of time? Not necessary that it has to be digital, of course yes if your business is online!
Still wondering how to achieve it ? Let me explain step by step
Suppose your’s is new internet start up and you have shoestring budgets ( most real scenario ) but want to acquire more customers so how should you go about It ?
Brainstorm with your co-founder /team and find out your target customer – It should be as close as- Male or female | Age Range | Hobbies | Geography (city, state etc)
Once you close down to define your target customer, analyze in detail how your target customer behaves in real life. What I mean is, say for example, yours is grocery shopping online store then your customer either goes to the nearest shop or cart after coming to back office daily or might be visiting a mall in the weekend to bargain good prices! This will help you to develop where you should intervene and tell your target customer that come to our online store for your grocery shopping rather than going to your nearest shop!
So you have to explain benefits of shopping online vis a versa traditional shop or mall. Mind you if you are a good businessman you will try to show them how their life becomes easy and not only higher discounts or cash on delivery!
To co-relate medical store example, they have high conversion rate only because customers to go buy medicines only when it is needed right? yes, so you have to spot that point in your target customers life when that need arises with respect to your product ?
As I said in online grocery shop example, there can be two points where you can pitch your product to get more conversion 1. Pain of visiting nearby shop after coming back from hectic office life and 2. Weekends have high queue at malls so spend more time having fun rather than waiting in queue.
Spotting the point where your target customer is on the verge of decision making and pitching you product at that very important to get higher conversion rate in digital media to get more ROMI.
While 90% conversion may be difficult in real-world scenario, I am sure it could be in multiples of what you are doing now if you are able to target the right customer at the right time!
Do let us know what you think in comments section!
[About the Author: Tejash Mehta is co-founder of internet start www.skinsecrets.in . He is a Google Analytic Certified Professional and Digital Marketing Enthusiastic.]
[…] *Note: 1.4% is an eCommerce KPI benchmark reported by Moz. But in individual cases, for larger eCommerce stores, it ranges from 0.78% to 3%. […]
Thank you Rahul for your kind words.
I completely agree with the point of you having to understand your buyers persona before you try pitching or promoting your product/service or broadly your business to them.
Apart from that I would classify the pharmaceutical purchase/example as a need based purchase, as opposed to a more want based purchase when it comes to e-commerce stores. People are a lot more inclined towards making purchases that they know they need vs a purchase which they feel would be like an accessory to their living. Like your rightly said, once you’ve identified your buyers persona, it only makes sense for you to target that customer group in the right way such that when the customer thinks about that Product or Service they should think about your business.
Additionally, imo, I believe if e-commerce stores engaged their customers more rather than dishing out everyday discounts they might just be able to work towards building a loyal customer base. However, the fact that competition is so stiff I can understand why they’re primarily running behind ensuring that they don’t lose out on conversions.
Really nice article Tejas, thanks for putting this down