The pressure to keep pace with industry giants – such as Amazon – is perhaps one of the largest challenges facing ecommerce retailers. Innovations by this pure-play heavyweight have led consumers to expect more of retailers. People expect a seamless integration between retailers’ brick-and-mortar and online stores; and want to buy anywhere, at any time and be able to collect shopping from anywhere.
Further, whilst initiatives like ultra-fast delivery and click-and-collect enable retailers to meet some of these demands, they provide new logistic and fraud management challenges for retailers to contend with. This adds much more friction to the buying process, causing some retailers to, inevitably, lose sales.
The size of the problem
Retailers rightly measure success by sales. But, what about the sales that never happen, despite customers trying to buy? Retailers are leaving as much as 10% of potential sales on the table, while revenue leaks through the buying journey. This is because at every stage of the process there is ‘friction’. This is often created by factors such as poor user experience (UX), payment gateways, fraud management, two-factor-authentication and inventory issues. The result: sales slip and revenue leaks. So, to combat this, retailers must consider strategies to avoid revenue leakage, while meeting consumers’ expectations.
Remove fear from your retail equation
Most sales lost through unnecessary friction in the shopper journey are within the retailer’s control and there are steps they can take to optimise their sales funnel. And, whilst lost sales and customer relationships are on retailers’ radars, the reasons for these losses and issues don’t necessarily attract the attention that they should. This is because it is hard for any one team to see all holes in the buying journey – because teams often operate in silos, making the picture hazy. By collaborating, marketing, payments, fraud management, customer support, operations and finance can form a more complete view.
Retailers also need to appreciate that revenue leakage occurs throughout an order’s life cycle. Consider this scenario which comes from my discussions with a broad range of retailers:: Marketing attracts consumers to a retail website and a fraction of those go on to click ‘buy’. But, because of how payment gateways operate, rules governing transaction velocity and the like triggered by ecommerce platforms, and the imperfection in some retailers’ fraud reviews, 10% or more of orders are declined in the authorisation and fraud-review stages. Unfortunately, some of those orders were in fact placed by legitimate customers.
From there, some orders aren’t despatched because items are out of stock, meaning another 1% or so of orders are declined. Then, of course, there are returned orders — which can easily reach 20% or higher, depending on the vertical — and chargeback claims to deal with. Before you know it, the initial set of customers that marketing has acquired has shrunk by as much as 30% in some of the hardest hit verticals and revenue has leaked.
Additionally, in the near future – during 2020 – online retailers will have the added challenge of PSD2’s Strong Customer Authentication (SCA) to contend with. This regulation has the potential to cause further revenue leakage in the shopping journey, due to lost conversions from additional friction and step-ups during the online checkout process. However forward-thinking merchants can turn this challenge into an opportunity ahead of the mandatory 31 December 2020 enforcement deadline, optimising for ways to seamlessly authenticate the user and turning SCA into a competitive differentiator.
Steps to staunch revenue leakage
So what should retailers do? Retailers, that are looking to break down the barriers that prevent their customers from completing a sale, must first remove the internal silos that prevent the business from forming a clear view of the buying funnel and get teams to collaborate about this issue. After this, they need to develop a revenue leakage dashboard that provides a comprehensive view of the buyer’s journey to help them assess and plug holes.
The next step is to establish a revenue-leakage benchmark. Retailers need to know where they stand in comparison to others in the same space; taking factors like their ‘vertical’, basket size, and brand maturity into consideration. There is a whole industry of consultants whose expertise can be drawn on.
From there, retailers can identify where leakage is the most severe and take steps to strengthen that weakness. The next part of that phase includes optimising that trouble spot; measuring improvements and testing effectiveness; then moving to the next problem and repeating the cycle again to improve.
Additionally, one key area where revenue normally leaks is at the payment level. Significant progress can be made here and retailers should trust their fraud professionals to drive the relationship with payment gateways in their favour. Typically payment gateways try to dictate how risk management operations perform and so we advise that inhouse fraud experts strive to drive and control this relationship.
Aside from this, retailers need to assess their fraud tools and processes. For instance, experts can, appropriately and easily, review and disable some rules and filters activated by payment gateways, ecommerce platforms and card processors to see what orders are not getting through systems. Also, retailers should strive to understand whether they are suffering from an unreasonably high percentage of declines from payment partners – accessing benchmark data from the likes of Visa can help here.
Finally merchants should evaluate the market for SCA solutions that will allow them to provide the best customer experience and minimise the number of step-ups caused by SCA. We are all hoping exemptions will enable this to an extent, but this is still a very undefined area and there will still be the need for SCA. Merchants should investigate additional tools such as biometric authentication to seamlessly perform SCA in the background, minimising friction and also revenue leakage.
Staunching revenue leakage will enable ecommerce retailers to operate without over-cautiousness and fear. In an age where data breaches and cyber theft are so prolific, it’s understandable why retailers are placing barriers between themselves and customers. But, treating customers like criminals when it comes to fraud management only leads to shoppers penalising retailers in return.
Finally, marrying the right ecommerce platform with the right design, user-experience and risk management practices can stem revenue leakage and preserve lifetime customer value – giving retailers the confidence to serve more legitimate customers in the way they want to be served.
Ed Whitehead, MD EMEA, Signifyd