Have you ever wondered why the average conversion rate in eCommerce is only 3 percent? I admit that this can have many different reasons. However, from a consumer's point of view, we can define four different kinds of risk. I'll explain what they are in this blog article.
In the following article I would like to introduce you to the four biggest risks of online purchases from the customer's point of view and give you tips on what you can do about it. You will learn which risks a shop visitor is confronted with and which measures you can proactively implement to minimize these risks and thus increase the probability of a purchase.
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 eCommerce is enormous. In Germany alone there are 120,000 online shops. From smaller competitors with good products to huge platforms like real.de or Amazon. They all compete for the attention and - at the end of the day - the customers' money. If your shop generates 6 million euros in sales per year, you will land according to the Study by Schwarze Consulting in the Top 1000 list. Ouch, one would have assumed that with a turnover of 6 million Euro one would be one of the big fish. Far from it! In addition, we are the German Returns Champions. According to the EHI Study every fifth package is returned.
Imagine that your online shop had 1,000,000 visitors last month. Hats off for that! And now we take the average conversion rate of 3 percent. That means you made 30,000 sales. With an average order value of 50 Euros per order, that's 1,500,000 Euros sales per month. That's great! But now just imagine that your conversion rate is one percentage point higher, that is 4 percent. Then your turnover would no longer be 1,500,000, but 2,000,000 Euros. And with such a small increase in the conversion rate - we'll leave the returns out of it for now.
But the user, on the road at his smartphone or desktop, has even bigger problems. When searching for a product, he will most likely come across not only 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, which users have to deal with.
4 Risks that your customers face when buying online
1. Functional risk
The functional risk describes the fact that the user can neither check the quality nor the functionality of the product himself when buying online. This sounds totally trivial, but it is still an enormous hurdle for visitors of your online shop. No matter whether you sell your own products or are a reseller.
At the end of the day, many of the Internet users know how much money and effort is invested in high-quality campaigns, product photos and marketing per se. Just google for "online shopping fail" or "aliexpress fail" and you will see how far apart the promised can be from the product actually delivered.
The good news is that you can counteract the 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, thus proactively preventing functional risk. The company even goes one step further and offers an "Anti Hole Guarantee" on its products - and also formulates this very freely and loosely on the website:
However, large companies and premium brands are also counteracting this risk by extending the statutory right of withdrawal for distance selling contracts from 14 days to fair 30-day return conditions. Such measures are gladly used, because the customer feels safer regarding the product purchase. Well-known examples are the premium brand Gemini from the cookware and utensils sector or, of course, the giant Amazon, which already extends its return policy until 31 January for orders placed in November due to the Christmas business.
2. Personal risk
Personal risk is mainly concerned with the misuse of personal data, for example the unauthorised disclosure of email addresses. Although personal risk played a greater role before the entry into force of the European Data Protection Regulation (GDPR ) than it does today, it is not to be sneezed at in times of cookies and advertising mails.
With the help of GDPR and the new ECJ ruling on Cookie Consent the legislator has already (attempted) to put a stop to the misuse of data, which has been partially successful. Nevertheless, before buying from an unknown provider, users consider how trustworthy the provider really is and whether the personal data is really in good hands with him.
Because one thing is very clear: Nothing destroys a customer relationship as quickly as unauthorized advertising mail, spam or if the customer feels that you have betrayed him. So be honest and maximally transparent to 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?
The front-runner in solving this problem has always been Amazon. Even on December 24, Amazon still guaranteed same-day delivery in selected regions, thus reducing 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, as customer inquiries about delivery times have increased due to COVID-19.
In any case (whether pandemic or not) talk to your shipping service providers and calculate an approximate delivery time. Communicate this! And ideally, you should send your customers a tracking ID after the order, so they can follow the delivery of the product quasi live.
Also important is the time risk in case of a complaint or exchange. Here you should answer your customers quickly and not put them off for a long time. In the end the customer will reward you with more confidence.
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.
Do I get stuck with the costs? Do 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 suppliers you may not have known very well. But you really wanted the item offered there and the price was simply the best. By the way, this happens to me regularly, when I compare prices with a price comparator like Idealo I am looking for the cheapest provider. Which of the following payment methods would you use?
- Credit card
If one believes the study eCommerce in Europe by PostNord (the Scandinavian DHL), payment methods such as PayPal or similar are enormously ahead in Germany with a share of 50 percent. This is followed by purchase on account with 24 percent and only then comes direct debit or credit card with 18 percent. Sure, that is typically German! So these are not really breaking news.
But our European neighbours are also on a similar path - albeit not as drastically. Just take a look at the Study on site 25. In Italy, more than 55 percent pay with PayPal or similar services, in the Scandinavian region the figure is 21 percent (purchase on account 12 percent), and our Dutch colleagues have a similar distribution: Credit card: 30 percent, PayPal or similar: 29 percent, purchase on account 21 percent. The two biggest assets of PayPal are buyer protection and fraud protection.
To refer to the example of just: I would have paid with PayPal. Would you?
The more (established) payment providers I make available to my customer, the higher the probability that exactly the right one is available - the one with which he feels most secure. Seals in terms of encryption (SSL) also usually work very well to reduce the perceived financial risk.
The Düsseldorf start-up Just Spices integrates, for example, all payment methods as well as shop evaluations and encryption using SSL. This enables trust to be built up between the user and the online shop, even at a later stage, or at a later entry within the Customer Journey.
All these four risks are not singular. Often the customer, especially in contact with a new shop, is confronted with all four at the same time - even if not with the same intensity.
Especially with smaller and less known online shops, the dangers from the customer's point of view are much greater. That's why you won't see the SSL seal 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.
Don't immediately start tackling all four risks in the same way, and flood your shop with seals, symbols and information - your product should still be in focus. But you can think about how to deal with these four risks and what you can do, step-by-step, to minimize these risks.
For example, if you have a shop for an older target group, the financial and personal risk may dominate. With a younger target group, who are also better acquainted with the rights on the Internet (keyword 14 days right of return), the time risk may dominate.
It is important that you "pick up" the customer at the right place and build up trust in him 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? What is the first risk you should take action against?
If you learn these things about your customers and act accordingly, your conversion rate will improve in the long run. That's a promise.