Have you ever asked yourself why the average conversion rate in e-commerce is only 3 percent in e-commerce? I admit that this can have many different reasons. However, from a consumer perspective, you can define four different categories. I'll explain which ones in this blog article.
In the following article, I would like to introduce you to the four biggest risks in online purchases from the customer's point of view and give you tips on what you can do about them. You will learn which risks a shop visitor faces and which measures you can proactively implement to minimize these risks and thus increase the purchase probability.
From a customer's perspective, the following are the four biggest perceived risks:
- Functional risk
- Personal risk
- Time risk
- Financial risk
Fierce competition for online shops
The competition in e-commerce is huge. In Germany alone, there are 120,000 online shops. From smaller competitors with good products to huge platforms like real.de or Amazon. All vie for the attention and - at the end of the day - the money of the customers. According to the Schwarze Consulting study, if you generate 6 million euros in sales per year with your shop, you'll end up in the top 1000 list. Ouch, you would have thought that with a turnover of 6 million euros you would already be one of the big fish. Far from it! In addition, we Germans are the returns champions. According to the EHI study, every fifth package is returned.
Imagine your online shop had 1,000,000 visitors last month. Hats off for that! And now let's take the average conversion rate of 3 percent. That means you generated 30,000 sales. With an average order value of 50 euros per order, that's 1,500,000 euros in sales per month. Great stuff! But now imagine that your conversion rate is one percentage point higher, i.e. 4 percent. Then your turnover would no longer be 1,500,000, but 2,000,000 euros. And that's with such a small increase in the conversion rate - we'll leave the returns out of it for now.
But the user, on the go on his smartphone or desktop, has even bigger problems. When searching for a product, it is highly likely that they will not only come across you and your shop - but also one, two or three of the almost 119,999 other shops. But why does the user buy from the competition and not from you? This is where the four biggest risks come into play that users have to deal with.
4 risks your customers face when buying online
1. Functional risk
The functional risk describes that the user can neither check the quality nor the functionality of the product itself when buying online. This sounds totally trivial now, but nevertheless it is an enormous hurdle for visitors of your online shop. No matter if you sell your own products or if you are a reseller.
At the end of the day, many of the internet users know how much money and effort is invested in quality campaigns, product photos and marketing per se. Just google "online shopping fail" or "aliexpress fail" and you'll see how far apart the promised can be from the actual product delivered.
The good news is: you can counteract functional risk with a variety of measures and methods.
The online shop snocks.com, for example, offers its customers a 6-month warranty on all products in its own store, as well as a free return and thus proactively prevents functional risk. The company even goes one better and offers an "anti-hole guarantee" for its products - and even formulates this very freely and loosely on the website:
However, large companies and premium brands also counteract this risk by extending the statutory right of withdrawal for distance selling contracts from 14 days to accommodating 30-day return conditions. Such measures are gladly used, because the customer feels safer with regard to the product purchase. Well-known examples would be the premium brand Zwilling from the area of cookware and utensils or, of course, the giant Amazon, which already extends its return policy until January 31 for orders in November, due to the Christmas business.
2. Personal risk
Personal risk is mainly about the misuse of personal data, for example the unauthorized disclosure of the e-mail address. Personal risk played a greater role before the European Data Protection Regulation (GDPR ) came into force than it does today, but in times of cookies and advertising mails it is still not to be despised.
With the help of GDPR and the new ECJ ruling on the subject of cookie consent, the legislator has already (attempted) to put a stop to data misuse, which has also been partially successful. Nevertheless, before buying from an unknown provider, users should consider how trustworthy the provider really is and whether their personal data is really in good hands.
Because one thing is very clear: Nothing destroys a customer relationship as quickly as unauthorized advertising mails, spam or if the customer feels betrayed by you. So be sincere and maximally transparent with your customers!
3. Temporal risk
Shop visitors may perceive the risk that their ordered goods won't reach them on time – or only with considerably long delivery times. This risk may sound trivial as well. But especially in uncertain situations like the current corona crisis, many online shoppers ask themselves: When will I actually receive my goods? Will I receive my order now much later?
There are similar perceived uncertainties in less exceptional situation than today's crises – namely at Christmas. Every year, thousands and thousands of people ask themselves the same question: Will my order (or the gift I ordered) arrive before Christmas?
Amazon has always been the frontrunner in solving this problem. Even on December 24, Amazon guaranteed same-day delivery in selected regions and thus reduced the time risk of its customers to virtually zero.
Now you're not Amazon, I know. But simple updates and information on the product pages or on your home page about delivery times are enough for many customers to minimize the perceived uncertainty.
Many online shops (e.g. sternglas.de or monkeystick.de) have integrated information on their product detail pages or the start page, because customer inquiries about delivery times due to COVID-19 have accumulated.
In any case (pandemic or not), talk to your shipping providers and calculate an approximate delivery time. Communicate this! And ideally, you send your customers a tracking ID after the order, so that they can follow the delivery of the product quasi live.
Also important is the time risk in case of a complaint or an exchange. Here you should answer your customers quickly and not put them on the back burner. In the end, the customer will reward you with more trust.
4. Financial risk
For potential buyers - and in the theory of eCommerce - the financial risk is considered the risk with the greatest influence on the purchase decision. The financial risk includes all thoughts and concerns of the customer about what happens to the money paid in the event of a return or complaint.
Will I be stuck with the costs? Will I get my money back? Is the shop even safe? Should I really leave my credit card information here?
Please think back to your online purchases from sellers that you may not have known very well. But you really wanted to have the item offered there and at said online shop the price was simply the best. By the way, this happens to me regularly when I use a price comparator like Idealo to search for the cheapest provider. Which of the following payment methods would you use?
- Credit card
If you believe the study E-Commerce in Europe by PostNord (quasi the Scandinavian DHL), payment methods such as PayPal or similar are enormously far ahead in Germany with a share of 50 percent. This is followed by purchase on account with 24 percent and only then by direct debit or credit card with 18 percent. Of course, that's typically German! So this is not really breaking news.
But our European neighbors are also on the move - albeit not as drastically. Take a look at the study on site 25. In Italy, over 55 percent pay with PayPal or similar services, in the Scandinavian region the figure is 21 percent (purchase on account 12 percent) and the figures for our Dutch colleagues are similarly distributed: Credit card: 30 percent, PayPal or similar: 29 percent, purchase on account 21 percent. PayPal's two biggest assets are buyer protection and fraud protection.
To go back to the example I just gave: I would have paid with PayPal. And you?
The more (established) payment providers I make available to my customer, the higher the probability that exactly the right one is there for them - with which they feel most secure. Also seals in terms of encryption (SSL) usually work very well to reduce the perceived financial risk.
The Düsseldorf start-up Just Spices, for example, integrates all payment methods as well as shop ratings and encryption via SSL. This allows trust to be built up between the user and the online shop later on, or at a later point in the customer journey.
All these four risks are not singular. Often, especially in contact with a new shop, the customer is confronted with all four at the same time - even if not with the same intensity.
Especially with smaller and unknown online shops, the risks are much greater from the customer's point of view. That's why you don't see SSL seals at MediaMarkt or Amazon, for example, because these players have earned the trust of customers over the years and are no longer equally exposed to all risks.
If you have a shop for an older target group, for example, the financial and personal risk may dominate. With a younger target group, which is also more familiar with the rights on the Internet (keyword 14-day return policy), the time risk may dominate.
It's important that you "pick up" the customer at the right place and build trust with them as quickly as possible. With the help of A/B tests you can learn more about your target group: Which of these risks influences your (potential) customers the most? Which risk should you tackle first?
If you learn these things about your customers and act on them accordingly, your conversion rate will also improve in the long run. Promise.