"E-commerce is silly!" Alexander Graf, blogger (www.kassenzone.de) and a new-media corporate developer at the Otto Group, used this motto for a session he organised at this year’s BarCamp in Hamburg. Session participants tackled the topic of market trends in German e-commerce. One of their hypotheses: the growth in competition is outpacing the increase in customers.
Trustworthiness as USP
It is precisely here that shop operators confront one of their largest challenges. For more and more companies, continuous growth in e-commerce sales renders the Internet appealing as a sales channel. At the same time, barriers to entering online business are disappearing thanks to increasing standardisation with regard to, for instance, shop software solutions and logistics services. Whereas shop operators were able just a few years ago to prevail in a niche, nowadays the next shop selling the same products is just a click away.
It is thus increasingly important for online merchants to distinguish themselves from competitors and rivals. Merchants can try to do so by lowering prices, for example. But that entails entering into competition with Amazon, eBay and other market participants which pursue aggressive pricing; such competitors have also enjoyed established brand recognition for years. In addition, lower online prices do not necessarily lead to high conversion rates. Germans, for instance, select online shops for relatively traditional reasons: security and data protection (25.5 per cent), good experiences regarding previous orders (23.0 per cent) and respectability (19.3 per cent) constitute decisive criteria according to a study of trends by the Quelle company, "Web Shopping 2009".
This is precisely where confidence-building measures come into play. Online merchants who can respond "Yes!" to consumers who ask "Can I trust this shop operator and make purchases securely in their shop?" can establish a critical competitive advantage and drive conversion rates sky high.
The four pillars of online trust
Tim Ash, an American author and expert on conversions, has defined four pillars which increase customers’ trust in an online shop: a seal of approval, guarantees, customer reviews and a professional design
1st pillar: Seal of approval
A seal of approval broadcasts to customers that the shop operator asked an authorised certification provider to inspect the shop as per objective and transparent criteria. Ash emphasises that such an online shop ultimately profits from the trust which consumers place in seal-of-approval providers. An online seal of approval must therefore already enjoy awareness and acceptance among consumers if it is to build confidence. As documented in a test by COMPUTER BILD magazine, few seals of approval in Germany meet these requirements: the European market leader, Trusted Shops, followed by Safer Shopping and EHI.
A consumer survey conducted by the Market Research Institute GfK in April 2010 shows just how important online seals of approval are to online consumers. Of online shoppers surveyed, more than 60 percent say that a seal of approval in an online shop is "important" or "very important".
Over 60 per cent of survey respondents consider seals of approval "important" or "very important" regarding online purchases.
ECC Handel, an institute for economic research in Cologne, measured the effectiveness of seals of approval in an experimental study. Nearly 15,000 online purchases were analysed. The findings are unequivocal. Online shops which had earned a seal of approval experienced an increased conversion rate and increased sales, too. And the Trusted Shops seal of approval offered the best results. The conversion rate was 43 per cent higher than for web shops without it.
A Trusted Shops seal of approval can boost conversion rates by more than 40 per cent.
2nd pillar: Guarantees
Guarantees help a merchant to alleviate the fears of shop visitors and customers by allowing him to focus on their apprehensions and to offer solutions. What do online shoppers fear when they visit an online shop for the first time? Many shop visitors are not sure whether their payment in advance would be returned to them should they cancel their order or the merchant becomes insolvent. Many shop operators do indeed insist that first-time customers pay in advance or cash on delivery in order to minimise the risk of non-payment.
Buyer protection in the form of a money-back guarantee will soothe consumers’ nerves. Buyer protection can help shoppers who, for instance, do not receive a delivery or refund. The GfK survey also indicates that 60 per cent of online shoppers express fundamental misgivings about submitting payment in advance to an online merchant which bears no seal of approval. Only two e-commerce service providers currently offer such buyer protection: PayPal and Trusted Shops.
3rd pillar: customer reviews
Customers who share with the online community their opinions and experiences regarding an online shop encourage others to accept and trust the shop, which in turn increases customers’ trust. Achieving such market acceptance is possible, however, only if a customer’s opinions are available to everybody who visits the shop.
A study by Fittkau & Maaß market researchers shows just how important customer feedback is to online businesses. Of the online users surveyed, nearly 80 per cent stated that they read fellow online shoppers’ reviews in order to decide where they will make their purchase.
Responses to the statement: "I often read shoppers’ reviews before making a purchase." 80 per cent of survey respondents consult customer feedback sometimes, if not often.
Economic researchers at ECC Handel also studied the impact of customer reviews on online shops’ conversion rates. Some 1,000 online purchases were analysed. Positive customer reviews were displayed in some online shops, but not in others. Findings show that the use of customer reviews can boost the conversion rate by as much as 40 per cent.
Conversion rates higher by up to 40 per cent thanks to customer reviews.
4th pillar: Professional design
An online shop is every owner’s store window and virtual version of a brick-and-mortar shop. Shop visitors naturally expect a professional online presence. Research by Tim Ash shows that visitors to a shop decide within mere seconds whether or not they trust it. And shop operators rarely get a second chance to persuade potential customers of their shop’s excellence. Design is often dictated by usability – the user friendliness of a shop. Most shop software solutions on the market today take this into account, and provide online merchants with an appealing design and good usability.
It remains possible to succeed in online business. This is also true for small and medium-sized enterprises. It is important, though, to establish and nurture customer relations so that they last indefinitely. Anybody eager to simply make a quick profit should stay away from online commerce. In contrast to brand development, reliance on confidence-building measures will result before long in perceptible profits thanks to better conversion rates, lower bounce rates and increased revenues.