You’re shopping online and go to check out, only to realize you’re $10 away from qualifying for free shipping. You can fork over $4.99 for shipping, or find another item to tack onto your order. No brainer, right?
By encountering a seemingly rational choice about shipping, you’ve been prompted to happily increase your order amount. This is why 60% of ecommerce companies cite “free shipping with conditions” as their most successful marketing tool.
If you are an ecommerce business, optimizing your free shipping threshold works because it plays on consumer psychology. Specifically, offers of free shipping tap into how we rationalize our shopping behaviors, the psychology of choice, and the value we place on the concept of “free.”
Most shoppers are still more accustomed to the offline store than the online environment. Because of this, we lack the context for understanding how shipping costs factor into online shopping.
We are loss-averse and effort-averse
Free shipping helps us rationalize buying something online instead of going to a store. If shipping turns out to be too expensive for an item that we could just as easily get at the store down the street, the rationalization fails, and we abandon our carts. “Unexpected costs” is the number one reasonshopping carts are abandoned.
The fact that the costs are “unexpected” is significant. Etsy recently ran a round of experiments that prevented customers from seeing shipping costs until checkout, and sales dropped, sparking public outcry from both buyers and sellers. Whatever your shipping policy is, transparency is key.
We don’t see shipping for online purchases as an extra service
If you buy something online, you have to have it shipped. There’s no way around it. This is very different from the traditional model, where having an item shipped to your house is an above-and-beyond, special service, because everyone else has to go to the store. Because shipping is required, we perceive shipping costs for online purchases as an annoying extra fee. Some are predicting that in the future, because of this new cost model, all shipping will be free.
The lesson here:
Customers view it as unreasonable to tack on an “extra fee” for something that is required, even though they understand that there is no such thing as truly free shipping. The key is to be as transparent about shipping costs as possible, so that the customer doesn’t feel “taken advantage of” at the point of purchase.
The illusion of choice
Consumers love making choices, even when they’re somewhat artificial
Seeing a free shipping option gives us a “choice”
If we’re going for cost-effectiveness in shipping, we’ll be looking at making a choice between free shipping, and the next cheapest option. A choice between two options (one of which appeals to our desire to acquire more stuff) is the simplest and most appealing kind of choice. We know companies aren’t taking a loss on shipping – they’ll get their money somehow – but when we see it presented as a choice, we feel a lot better about it.
By shopping online, we feel we are choosing the more convenient option
Choosing to shop online feels like a choice to avoid all the inconveniences of traditional shopping. Now we have two options to buy most things that we want, and when we pick the “convenient” one, the cost of shipping is the only bump in the road. Shipping costs generally feel like something we think we shouldn’t have to pay for, even though they are built into everything we buy traditionally (tomatoes at the grocery store are marked up to cover shipping costs), not to mention our personal transportation costs when we go to a store (gas, bus fare, etc.). We only feel the pain of these costs when we see them itemized.
The lesson here:
You may not be able to offer free shipping on every purchase, but you should make it an option at some order value. By finding your ideal free shipping threshold you’ll be able to motivate customers to spend more and your customers will feel in control of what they’re spending on.
The power of “free”
We see something “free” and automatically overvalue it
According to Dan Ariely, behavioral economics researcher, people typically overvalue the benefits of “free” items even when compared to better-quality items that cost a small price (i.e. most overwhelmingly prefer a free Hershey’s Kiss to a 14¢ Lindt truffle). The concept of “free” is so powerful that when Amazon introduced free shipping in some European countries, the number of orders increased dramatically, everywhere but France. Instead of being reduced to zero, the shipping price in France was mistakenly reduced to 1 franc (about 10¢), and this was enough to prevent a jump in sales. People place such a huge value on “free” that they viewed 10-cent shipping as not a good enough deal to sway them.
We feel uncertainty around the benefits of options that cost money
People have a hard time measuring the utility they expect to receive from purchasing an item and struggle to translate its value into dollars and cents. How much is that designer t-shirt really worth? That latte? Is it worth that price? This uncertainty adds a negative element to our consumer experience. Free options, on the other hand, have no downside. Our emotional response to them is much more positive.
The lesson here:
When in doubt between offering a product discount or free shipping, go with free shipping. While the monetary amount might be exactly the same, customers will value “free” more.
Free shipping influences consumer behavior on a deeply psychological (and often irrational) level, adding a powerful boost to your average order value. If you need help finding your ideal free shipping threshold, be sure sure to check out this how-to guide. It will help you find the ideal threshold to turn free shipping into your best marketing tool.
There is no shortage of top-down research telling us that the ecommerce market is enormous, growing extremely fast, and showing no signs of slowing down. According to sources like eMarketer, ecommerce is the only trillion-dollar industry growing at a double-digit percentage each year. And with the US Census Bureau estimating that only 7% of retail sales are done on the internet, ecommerce still has a lot of runway for growth.
Despite all this research, however, no one seems to be able to answer the key question: how many ecommerce companies are there?. The few estimates that exist vary by orders of magnitude, from tens of thousands to nearly a million.
We set out to answer this question for ourselves.
How we did it
We have a secret ingredient that helped us build an estimate from the ground-up: proprietary data. Here at RJMetrics, we work with hundreds of online retailers who generously allow us to anonymize high-level data points for analyses like these.
By combining our proprietary data with size and revenue information from third-party sources like the Internet Retailer Top 500 Guide, Alexa, and BuiltWith, we’ve conducted a comprehensive bottoms-up analysis of the ecommerce industry.
Obviously, the long tail is going to be very long here. Using BuiltWith to identify which websites have ecommerce technologies installed, we found 180,000 live websites with just the Magento shopping cart. When you extrapolate to include the full universe of competing ecommerce technologies, you can see how some estimates approach the one-million mark. As you might have guessed, however, the majority of these sites are not generating revenue on any meaningful scale.
In order to separate the wheat from the chaff, we needed to come up with revenue-based exclusion criteria.
Tying Alexa rank to revenue
Alexa rank is an easily-obtained proxy for traffic. Alexa ranks every website in the world based on traffic volume. A global rank of 1 represents the website with the most traffic in the world (currently Google). Since ecommerce revenue is directly correlated with the number of visitors to a site, we theorized that Alexa rank could serve as a proxy for revenue. To test this, we needed revenue data for a set of ecommerce companies that spanned a broad spectrum of Alexa ranks.
To get revenue data, we turned to the data in the Internet Retailer Top 500 guide and augmented it with our own proprietary benchmarking data set. The IR 500 includes the heaviest-hitters in ecommerce and our own data covered mid- and smaller-sized companies. Between these two data sets we had Alexa rank and revenue data on the full spectrum of ecommerce companies. Here’s what we saw:
Jackpot! There appears to be a pretty clear-cut link between revenue and Alexa rank. To be sure, let’s zoom in past the Walmarts and Amazons of the world and just look at the “long tail” of sites with Alexa ranks between 10,000 and 1,000,000:
Awesome. These combined data sets have given us visibility into the revenue of ecommerce companies throughout the Alexa top 1 million sites.
Note that, while the 500k-1M data point is quite low, it’s far from zero. The mean 2013 revenue for sites in that range is actually $1.5 Million and the median is around $500k. As evidenced by that discrepancy, average revenue drops meaningfully in this range.
For this reason, we’ve made an Alexa rank of 1,000,000 the cutoff for sites we include in our count.
While we are aware of many websites with an Alexa rank above 1,000,000 that are generating well into six and even seven figures of revenue, we believe there would be far more false positives than false negatives if we included sites beyond this mark. We’re comfortable concluding that the balance of false positives/negatives that exist on either side of the threshold are well balanced with a threshold at the Alexa one-million mark.
Now that we had a way of estimating which ecommerce companies are actually generating meaningful revenue, we simply needed some way of figuring out which sites in the Alexa Top One Million are actually ecommerce.
Using the BuiltWith API, we were able to profile every website in the Alexa Top One Million by evaluating the technologies being used by those sites. BuiltWith can detect a whole universe of shopping carts, marketing tools, and other ecommerce-specific technology that makes a website a dead giveaway as ecommerce.
But this wasn’t good enough—we were still getting a lot of false positives and false negatives. We decided to go a step further. We scraped the HTML of each site’s home page and looked for certain words: “shop”, “buy”, “sell”. We also detected defunct pages and sites that looked more like linkspam. We ended up building an entire set of rules to automatically evaluate whether or not a given site was ecommerce.
And at every turn, we evaluated the rules against a set of websites that we had evaluated by hand. Eventually, our algorithm was actually able to predict whether a site was ecommerce with 95% accuracy.
After we had fine-tuned the algorithm, we turned it loose on the Alexa Global Top One Million sites. Here’s what we found:
There are approximately 110,000 ecommerce websites generating revenue of meaningful scale on the internet.
More than 12% of the 100,000 highest-traffic websites are ecommerce, and that density clearly declines to about 10% for long tail. According to our data, ecommerce websites make up approximately 10-12% of the internet. And to our knowledge, we’re the first to actually attempt to count them.
I should point out that we include any online transactional business in our assessment. In addition to traditional online retail, this includes companies selling virtual goods, hosted software providers, marketplaces, travel sites, and even mobile apps with a commerce component. Basically, if you can spend money on their website, it qualifies.
It should also be noted that our detection methodology excludes non-English language websites and pornographic websites. When building our algorithm, we had to search for particular content on these pages. We didn’t have the resources to translate and test these rules in other languages, and we didn’t have the…inclination…to test them against pornographic websites. Both of these limitations of our analysis deflate the numbers we report.
Mid-market ecommerce companies generate a ton of revenue
Having just tagged every site on the Alexa Top One Million as ecommerce or not, and having figured out the underlying relationship between Alexa rank and revenue, we have our hands on a pretty interesting dataset. We’ll be exploring this data in several posts down the road, but here’s the first cut we wanted to share with you.
We looked at the revenue breakdown between the largest and smallest of these sites to try to figure out the industry landscape. Based on our dataset, ecommerce clearly breaks down into three distinct groups.
The largest ecommerce sites on the internet make up about 1% of the total population and generate 34% of the total revenue.
A distinct middle tier of ecommerce sites make up 51% of the total population and generate 63% of the total revenue.
Small ecommerce sites make up 48% of the total population and generate 3% of the total revenue.
This represents a big opportunity for vendors (like RJMetrics) serving the ecommerce market. Any company that can help merchants move from the bottom to the middle tier of the market will make a very significant impact on their top line. The middle of the market is where traffic volumes start to really bring in dollars, and getting to that scale is an imperative for any ecommerce company focused on growth.
Pinterest, founded in 2010, quickly became the visual social bookmarking service of the web. And, like the very best social platforms do, it invented a verb: pinning. Facebook users “like”, Twitter users “tweet”, and Pinterest users “pin”.
Pinning is aspirational, which means that data on pins is data on people’s aspirations. In this article, we’re going to explore the dataset of 50,000 random pinners and their pins. We’ll be using this data to understand user engagement, the aspirations of pinners, and what this means for the future of Pinterest.
Make sure to read all the way to the end—the final section on user engagement blew us away. Did you know that 84% of female pinners are still active in their fourth year? That’s some serious user retention.
If you’re a content marketer, you’ve probably noticed that content marketing is growing. If it seems like everyone is doing it, that’s probably because pretty much everyone is.
The Crowded Content Landscape
Here’s what Google Trends tells us about content marketing. You can see that people have been talking about content marketing for several years, but we start seeing a definite uptick toward the end of 2012 and through 2013.
That’s a whole lot of content, and a really crowded space. With so much competition, and knowing your intended audience has a limited amount of time for research, you need more than just great content to attract people’s attention. You have to actively work to get your content in front of them.
Facebook has become deeply embedded in the social fabric of millions of lives. At the same time, it has been building a powerful advertising platform that thrives in real-time. These combined forces are turning Facebook into one of the hottest new advertising opportunities available.
The “Everyone is leaving Facebook” myth
Facebook remains the social media powerhouse. Google defined search, Kleenex defined tissues, and Facebook defined social media. A massive 71% of adults use Facebook, three times more than the next social media runner up, LinkedIn.
The stress of the holiday season is behind you and it’s time to put your feet up and take a breather, right? Hardly. Successful ecommerce companies know that the next holiday season isn’t far away. Testing Adwords campaigns, preparing website updates, planning email campaigns, and procuring products takes an enormous amount of time. So grab your numbers from 2013 and get ready for a data-driven 2014.
Really? Do I have to?
Could you have been more prepared in 2013? We thought so. So get out that data. You probably have a whole lot of it and it comes with the added benefit that it was within a short time period – no Google algorithm changes or economic conditions to muddy your analysis.
You may still be polishing off the last of the champagne and eggnog, but we’re already one week into the new year. It’s time to wake up from the food coma and get serious about growing your business in 2014.
Problem is, there are a million things you can do to grow your online business. You can write more content, better content, improve SEO, hire more employees, start an Instagram promotion, boost social sharing, do a publicity stunt, use PPC advertising, guest blogging, or get better at email marketing. There are so many things you can do, but what should you do? Where should you focus your energies in 2014 for maximum impact on the bottom line?
The ecommerce market is exploding and as it grows, so do the number of software vendors offering new ways to capture customers’ attention. As you get ready for the new year, check out some of the cool tools being built to boost ecommerce conversion rates.
Repeat shoppers are worth far more than the average customer. Second time purchasers spend three times as much as first time shoppers, and repeat customers with three or more purchases under their belt spend up to five times as much per visit as a new customer. It’s no surprise then that while repeat shoppers only represent 8% of a site’s visitors, they make up nearly 41% of total online sales. We found the same pattern emerge in our own research. We discovered the typical online store gets 43% of its revenue from repeat purchases. So, just how are best-in-class ecommerce retailers growing this valuable segment of customers?
At RJMetrics, we don’t just look at our data, we look at all the data we can get our hands on. It’s easy to get obsessed with our own data (in a good way, of course), but it’s helpful to look at bigger trends as well. When researching data for food and travel plans for Thanksgiving, some trend stats really stood out for us. We think these three stats speak volumes of how consumers think.
The first stat:
Over Thanksgiving, about 1 in 4 turkeys consumed is a Butterball Turkey
How we interpret this data:
The most terrifying part of this article is that turkeys have seemingly gone on a collective diet solely to ruin our Thanksgiving plans (well played, turkeys). However, the most interesting part of the article is that nearly 25% of Thanksgiving meals involve Butterball.