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Improve Your Conversion Rate to Reap Bottom Line Benefits
By Jason Milch on behalf of Barbara Johnson
The use of traffic and conversion rate information as a key performance indicator has delivered major improvements to the bottom line for industry-leading retailers over the past half dozen years. While traffic data tells retailers what their opportunity is, conversion rate quantifies exactly how much of that opportunity a retailer has successfully captured. Leading retailers who manage their businesses based on sales opportunity routinely see their companies post some of the strongest bottom lines in the business. In fact, just slightly improving a store's conversion rate percentage will yield a much larger percent increase in sales - a one percent improvement in conversion rate can yield as much as a 10 percent increase in store revenue. Multiplied out over a large retail chain, that one percent improvement can mean millions of dollars in added revenue per year.
Given these facts, it should come as no surprise that the same forward-thinking retailers who have embraced conversion rate over the past six years, are constantly attempting to find new and innovative ways to bump the conversion metric up by small percentage points. To accomplish this, retail companies must institutionalize the concept of conversion rate in their decision-making processes and manage it not only at the corporate level, but with the individual stores and associates as well. This enables them to impress the metric's importance on those who have the largest impact on sales, the front-line store managers and floor sales staff. The following practices have been proven to significantly improve conversion rate and corporate performance:
- Traffic-based measurement of the effectiveness of advertising and promotions - Traffic data is one of the most powerful tools available for evaluating the effectiveness of store promotions and advertising initiatives. Advertising is intended to increase the sales opportunity - either by driving more traffic into the store or by inducing the customers in the store to buy more merchandise. By understanding both traffic and sales lift, retailers can accurately judge whether a particular advertisement or promotion was successful in meeting its objectives. This enables them to decide which advertising media are most effective in reaching their target audiences, which promotions are worth repeating and which are not. Retailers are often able to redeploy advertising dollars into less costly media or optimize their advertising mix to achieve the most effective reach for the least amount of advertising spending.
Shopper traffic data is able to separate the impact of promotions and advertising from other internal or external factors impacting sales. Analysis of promotional effectiveness based on sales lift alone cannot measure one of the primary goals of advertising - the extent to which the promotion increased sales opportunity by boosting store traffic. It can only measure the sales increase. For instance, evaluating an advertising campaign using only sales figures, a retailer might conclude that since management failed to see increased sales during the initiative, it must have been a failure. Viewing the same campaign based on shopper traffic however might show the retailer that the initiative was indeed successful in increasing the sales opportunity since it drove additional traffic to the store. The fact that sales failed to increase, despite higher traffic volumes, is not an indication that the advertising was unsuccessful in increasing sales opportunity, but rather that there may have been a breakdown in labor or merchandising that impacted sales. The retailer may then examine other key information such as STAR™ (Shopper To Associate Ratio) and out of stock merchandise, to pinpoint the exact cause of the failure and plan appropriately for future promotions.
- Evaluating both traffic lift and conversion when new product lines are introduced into a store - Carefully analyzing these variables can tell a retailer if a new line is increasing sales opportunity by attracting new shoppers. Additionally, viewing traffic lift in combination with conversion rate can identify other issues impacting sales. When traffic is increasing but conversion isn't, the cause may be a new line having merchandising issues such as out of stocks on key sizes. A retailer can evaluate these issues as the line is introduced and take corrective action before it is too late to achieve the line's sales objectives..
- Scheduling store labor based on STAR (Shopper To Associate Ratio) - Shopper traffic data provides retailers with their truest measurement of sales opportunity, and knowing that opportunity is the key to effectively scheduling labor. By scheduling the appropriate amount of labor during all operating hours and placing the best sales staff on the floor during the hours of greatest opportunity, retailers can utilize labor to bolster store conversion rate.
The STAR provides the ideal solution to labor scheduling challenges. By studying trends in hourly and daily store traffic reports, district and store managers can identify an optimum STAR for a particular location, striking a balance that provides the best possible customer service and highest average conversion rate and average dollar sale per transaction during all operating hours, without overstaffing the store with unnecessary labor that can adversely impact ROI. Once the ideal STAR is identified, scheduling additional labor above that number will result in diminished returns on the retailer's labor investment, while scheduling below the ideal STAR will result in not enough employees being on duty during peak selling days and hours, leading to lower quality customer service and lost sales.
- Scheduling employee breaks around store traffic trends - Although breaks are a necessary part of every workday, far too many managers fail to consider the sales opportunity (traffic) when scheduling employee breaks. Just as scheduling labor requires careful attention to shopper traffic trends, breaks should be scheduled in the same manner, utilizing historical data trends that predict the busiest and slowest selling hours for each day. "Power hours" - a retailer's highest opportunity hours - need "all hands on deck," and all associates should be aware that power hours are the times of day that have the greatest impact on conversion rate and thus, should be devoted to customer service. This type of scheduling ensures that breaks will usually be taken during low traffic hours when they do not interfere with sales opportunities or customer service. Additionally, building breaks into trend-supported weekly staffing schedules eliminates the headaches managers often experience in keeping track of which staff members have already taken breaks and which employees need them, enabling the manager to keep the appropriate sales staff on the floor at all times.
- Hiring associates with work availability that aligns with the traffic trends - Store managers typically develop their schedules based on staff availability; however, too often associate availability is for the lower opportunity days and hours. Hiring associates with availability proportionate to traffic patterns provides managers with the staff availability to meet their scheduling requirements. This ensures that retailers will have the appropriate manpower available to best service their customers at all times, ultimately leading to improved sales and conversion rate.
- Making sure that store-closing activities begin after the store closes - If retailers take a close look at their data, they might notice that sales and conversion rate normally drop off dramatically near the end of most days. They might also notice that traffic levels tend to decline during the last sixty minutes of the day at a much slower rate than sales and conversion rate. This type of intelligence typically points to a tendency seen quite often in retail environments, in which store managers and staff begin their daily closing tasks while the store is still open and, in many instances, while customers are still in the store. This type of activity sends customers a message that their business is not important. Additionally, customers passing by the store who see closing activities in progress are less likely to enter. In both cases, the end result is lost sales opportunities that over time, negatively impact conversion rate. It is absolutely essential that retail sales staff devote their full attention to customer service during all of a store's operating hours.
- Developing employee-training procedures and sales techniques based on conversion rate improvement - Research has proven that retailers who measure store performance relative to traffic often experience improved sales and a larger average purchase per customer, both of which result in improved conversion rate. By developing employee-training procedures in which traffic and conversion rate play integral roles, sales staff, managers and company executives will begin to see that certain sales behaviors impact sales more than others. For instance, training staff members to greet customers individually as they enter the store may, over time, lead to improved sales, while sales associates who are stocking the shelves when a customer enters will communicate that they are too busy to provide assistance.
While these practices are simple in concept, they cannot be properly implemented without detailed shopper traffic information. Managing labor based on traffic and conversion rate improvement and managing promotions based on traffic improvement, proves that retailers do not necessarily need to spend more in order to reap improved sales and conversion rate; rather they must simply manage their resources more efficiently.
ShopperTrak's innovative retail traffic solutions demonstrate a market leadership position in the retail, gaming, financial services and entertainment industries with the most advanced set of specialized business information tools available today.
  
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