How to Avoid Losing Revenue & Optimise the Customer Buying Journey
By Ed Whitehead, MD EMEA, Signifyd
Consumers today expect a superfast, seamless shopping experience whether they are buying online or in a bricks-and-mortar store.
This trend of ever-increasing expectations has led to radical disruption throughout retail, but most especially in the fashion and apparel vertical. In recent weeks, we’ve seen H&M overhaul its omnichannel strategy, leveraging its stores as fulfillment centers. We’ve watched online consignment and apparel rental shops join with clothing brands and retailers to broaden their appeal. And we’ve seen the evolution of fast fashion, which has emerged as one of the most dominant retail business models in recent years.
Fast-fashion retailers have made a name for themselves by highlighting the value of a seamless and frictionless purchasing experience. They ensure that orders are processed and dispatched as quickly as possible. In addition, fashion retailers are striving to perfect their omnichannel strategies, and offer new services such as one-click ordering and same-day delivery to satisfy the demanding customer.
Digitally native fashion retailers are racing ahead adopting super-fast, seamless shopping experiences. One need only look at Boohoo which experienced record sales at the end of last year, unlike the multitude of traditional retailers who have become victims of the rapidly changing industry. Boohoo has built a customer experience that is seamlessly replicated across devices, which allows customers to effortlessly browse, or buy no matter where they are or what device they are using. It’s no surprise that Boohoo has taken fashion retail by storm.
Naturally, the retailers that have been left behind are now rushing to catch up and orchestrate omnichannel brilliance. But jumping head first into digitally transforming their business can lead them to lose control of the all-important buying funnel, resulting in a significant loss of revenue.
The scale of the problem
As fashion retailers strive to perfect the omnichannel experience, new logistics and fraud management challenges arise, creating friction in the buying process. These challenges are leading to as much as 10% of a retailer’s potential sales being left on the table. Poor user experience (UX), payment gateways, fraud management, two-factor-authentication and inventory issues among other factors introduce friction and degrade the customer experience. The result: sales slip, revenue leaks.
The good news? Most sales lost through friction in the shopping journey are within retailers’ control, and there are steps that can be taken to optimise the sales funnel.
Where is revenue slipping through the cracks?
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. It’s 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.
Revenue leakage occurs throughout an order’s life cycle. Marketing attracts consumers to a retail website and a fraction of those go on to click ‘buy’. But, because of payment gateway rules governing transaction velocity, 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 run as high as 40% for online apparel orders — and chargeback claims to deal with. Before you know it, the initial set of customers that marketing has acquired has shrunk by half in the apparel vertical 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.
How can fashion retailers prevent revenue leakage?
Brands 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. Fashion retailers need to know where they stand in comparison to competitors, taking into consideration the average basket size, and brand maturity.
Retailers can then 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.
One key area where revenue normally leaks is at the payment level. Significant progress can be made here and fashion 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.
Retailers also 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. 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 prepare for the future by evaluating the market for SCA solutions. The goal should be to provide the best customer experience while minimising the number of step-ups caused by SCA. We are all hoping exemptions will enable this to an extent, but this is still an undefined area and there will still be the need for SCA. Merchants should investigate features such as biometric authentication to seamlessly perform SCA in the background, minimising friction and also revenue leakage.
There are factors at play in today’s retail climate which fashion retailers can’t necessarily mitigate – including increasing business rates – but it’s evident that there are significant aspects of the buying funnel that retailers can control and improve.
The fear of fraudulent activity is causing retailers to put up barriers between themselves and customers. Treating innocent shoppers like criminals, can result in frustrated customers abandoning their baskets. Worse it can encourage them to take their custom to fast-fashion upstarts that are already equipped with more seamless buying journeys.
There is hope for fashion retailers though. By marrying the right ecommerce platform with the right design, user-experience and risk-management practices, retailers can prevent revenue leakage and preserve lifetime customer value – giving themselves the confidence to serve more legitimate customers in the way they want to be served.