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Wednesday, May. 24, 2006 at 10:21 am

The State of Online Retailing

By Persuasion Architects
May 24th, 2006

Conversionrates_declining

It keeps going down, down, down.

What?

The average conversion rate for online retailing.

In 2002 it was 3.2%, in 2003 it was 2.4%, 2004 it was 2.6%, and last year down to 2.4%

All this according to the Shop.org State of Online Retailing 2006 report.

Think about 2002, ages ago in internet years right? Now think about 2005. Today sites are better, better technology. Faster sites. Better usability. Better web analytics. Majors sites have been redesigned since 2002. More users have broadband, and visitors are more comfortable buying online.

So what is going on?

Lot of folks still waiting for their cats to bark. Are you?

Add Your Comments

Comments (10)

  1. Any idea as to whether there’s any connection between the declining overall conversion rates and an influx of new internet users?

    Your thoughts?

    -signed, a Concerned Conversion Copywriter.

  2. One possibility is that there are now more small businesses getting into the online retail sector. It is easier to set up a store in 2006 than it was in 2002 – more plugin and play shopping carts, more payment methods, less fear on the part of site owners – but the small guys do not have the data or knowledge to use that data to improve the conversions of their sites.

    That is possibility one.

    The other one is even more simple: If there are more retail sites out there now (a reasonable assumption) that means that there are more choices for purchasing now, which means that overall average conversion rates necessarily must be lower – unless demand has also grown in proportion with the number of sites feeding that demand.

    Example: Say you have a site selling widgets. Back in 1999 it was the only one selling widgets online, and so it grabbed a large marketshare and converted its visitors at a rate of 25%. Wow – but there was no competition, so of course you got lots of business.

    Now in 2006 there are 50 sites all selling widgets, but the number of people buying widgets has only increased by 10% overall. All these sites are all competing in the same market, so the widget buyers are searching around looking at 10 or so sites before buying from one – whereas they used to check out one site (yours) and buy from it. So of course overall conversion rates are going down in this scenario.

    Those are my two cents.

  3. Jordan- In what way were you thinking there may be a connection?

    There may be, but I doubt it’s a significant contributor to the cause of the decline. The increase in comfort level, and advancement of the “general internet public” overwhelmingly outwieghs those new internet users.

    To that end as well, websites should keep in mind the lowest common denominator- a site can rarely be too usable or too reassuring.

    ==================================

    Stephen- Be careful with your assumptions. In all our presentations, the readily accessible “poor scent” examples almost exclusively come from the large players on the web. Plenty of smaller fish are focusing on doing what it takes to delight customers (by way of example, check our what http://www.formulazone.com/ is doing, with virtually a one man team).

    It’s not about technology, data or competition- it’s about understanding and interacting with your customers, providing value and meeting their needs.

    Your sample scenario suffers from some common, but faulty logic. **Conversion is not a zero-sum game** Don’t mistake cow paths for well planned scenarios providing a delightful customer experience.

    The fact that a website would convert 25% of it’s traffic does not tell you the other 75% weren’t in the market… they simply weren’t persuaded to CHOOSE to convert.

    Forget about share of market and look at what our customers are overwhelmingly telling us- they don’t want to be bothered, interrupted, annoyed, pitched, or sold in any way. They want to control *their experience*. They demand relevance and salience at every turn. They want a dialogue.

    Plan this delightful experience in advance, measure what you planned, and watch what happens to your conversion.

    Don’t take my word for it… http://www.clickz.com/features/case_studies/article.php/3605946

  4. I was not aware that there were so many smaller players that had better converting sites that the big ones. Your argument does deal my first suggested reason a fatal blow.

    However, I still stand by the second one: More sites serving an only slightly increased number of potential customers (people who really are interested in buying this product) will find that the demand is spread more widely and so neccessarily the average conversion rate per site is going to drop.

    If you think about it in terms of bricks and mortar stores: Before mass car ownership, if there was one clothing store in a town, it would get a lot of business and “convert” many of the people who walked through its doors. It would have had a high conversion rate, and the average conversion rate of all similar stores across the country would be similarly high.

    Then imagine car ownership comes along: Now the same customers can visit many different stores to try their clothes before buying. The number of potential customers for that store probably increases, for the simple reason that people from nearby towns visit to check out the merchandise, not just the people who live nearby. So even if the overall sales of that store go up due to the increase in visitors, the increase in the number of outlets available for an individual person to purchase from will mean that the average conversion rate as a percentage for these kinds of stores will go down.

  5. Average conversion rate for online retailing keeps declining according to Shop.Org

    According to Shop.org State of Online Retailing 2006 reportit’s getting harder and harder to make a sale; the average conversion rate for online retailing was 3.2%, in 2002 andin 2003 it was 2.4% while 2004 it was 2.6%, and last…

  6. Now that you mention it Howard, you’re probably right. The general internet public is more and more informed all the time, so an increase in users overall doesn’t explain more abandoned shopping carts and incomplete conversions.

    I suppose a growth in the number of ineffective ecommerce sites would, though…but I guess that was your point all along.

    Those more enlightened internet users are demanding a little more site useability before they part with their cash.

  7. Conversion Rate geht zurck

    Nach Forrester Researchs Shop.org State of Online Retailing Report gehen die conversion rates immer weiter zurck:

    Quelle: Future Now

    The average conversion rate for online retailing.

    In 2002 it was 3.2%,…

  8. You’re exactly right Jordan!

    It’s worth noting though, it’s more than just usability these “users” are demanding. (Keep in mind the etymology of “users” lies in production-focused sciences, not people-focused ones, like shopping ;)

    Yes, a site should be designed to be usable by all people visiting the site, but the real gains in Conversion come from giving these visitors exactly what they crave– targeted, relevant, and salient answers to the questions that drive their search. Understand what truly motivates them, plan scenarios that educate them in how you hold the solution, and then make it easy and intuitive for them to take action. A simple, but hard, recipe for leaving the 2.4% CR in the past.

  9. In my opinion, it’s not that online retailing is declining, instead I believe the opposit to be the case. Many of the online retailers are losing market share to the vast number of smaller online retailers, and these losses are skewing the data that supports the theory of a decline.

  10. bextra

    bextra
    You are dishonest, but never to the point of hurting a friend.

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