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03/15/2016

How to Increase Online Impulse Purchases: Part 1

The following is part one of a two-part feature by Keith Anderson, VP of Strategy & Insights, Profitero. Part two is available here

It’s no secret that impulse purchases are a CPG mainstay under siege. Pressure to offer better-for-you indulgences, the rise of self-checkout, and shoppers too distracted by phones to notice product displays in the checkout line—these are just a few of the reasons industry insiders are exploring the future of impulse purchasing.

In this article, we’ll explore seven ways brands and retailers can prompt unplanned purchases, with a focus on the online channel.

First, a little background…

Impulse purchasing is huge. By some estimates, it accounts for between 30 and 50 percent of offline purchases. And while typical “on the fly” items such as candy bars and batteries are physically small, the profits are big. The checkout area typically comprises 1 percent of the supermarket’s merchandising space, but accounts for 4 percent of the profits.

Brick-and-mortar stores continue to try to drive impulse purchases with primary aisle placement, and with secondary placement on clip strips, end caps and point of sale displays. But how do they face the challenge of enticing a consumer base that increasingly interacts with brands and retailers online, and one that is undergoing a fundamental change in how it shops for and purchases merchandise?

The rise of Amazon spear fishers.

One reason the online channel is so difficult for impulse purchases is because of the “spear fishing” dynamic that dominates the way people buy from Amazon. Think of them as hunters standing in shallow waters, each with a spear, knowing exactly what they’re looking for.

Bezos himself has said that Amazon is not in the business of selling stuff, but rather, of helping people buy. The implication is that people know what they want—Amazon just helps them find it and makes it easy for them to purchase. However, in an impulse-oriented category in which prompting is key, it’s not so easy in Amazon’s platform to provide prompts for items not directly related to what the buyer is looking for.

In other words, when a shopper on Amazon searches for candy, Amazon can readily display related items. But if the shopper didn’t search for candy, Amazon may not be able to easily display the other products the shopper is looking for.

Add to that the underlying psychology of impulse purchasing—the desire for instant gratification, which isn’t available when you have to wait for delivery of an online purchase—and you begin to see why many industry experts have a mixed outlook.

There’s also another online retail difficulty…

Full basket grocery, but limited opportunities.

Let’s look for a minute at online grocers that have a local presence, whether it’s delivery or click and collect. This category includes AmazonFresh, which offers not only shelf-stable products, but chilled and frozen products as well.

At Amazon.com, where the spear fishers are shopping, the average order size has fewer than two items. But average orders for the full basket grocery players tend to be in the 20- to 30-item range, sometimes larger. However, even though shoppers are building a full basket, the flow of their online shopping experience has fewer secondary and impulse merchandising display opportunities than a traditional brick-and-mortar store. There simply isn’t the opportunity for the retailer to hang a clip strip in the aisle or through a merchandise rack up at checkout. For the full basket online grocery players, the challenge is simple: They may have only two or three secondary placement opportunities, whereas in a brick and mortar store, they might have 15.

What to do?

For brands and retailers, it’s a multi-billion-dollar challenge.

Here are seven ways to meet it—online:

1. Full basket minimum order size

One potential approach for online grocers would be to use impulse items to help shoppers meet minimum order requirements. For example, a shopper might need to buy $35 worth of goods to meet free shipping hurdles. For an order just short of $35, the shopper might be prompted with impulse items that would put them over the minimum.

2. Larger pack sizes

Larger packs can be particularly effective for Amazon, where there’s more pressure on individual items to be economically viable.  By selling larger quantities in fewer transactions, impulse shifts from the purchase itself to the opportunities for consumption. So, rather than buying smaller packs, the shopper buys bigger packs, but less frequently. It’s the difference between buying a pack with 80 pieces of gum instead of 12 or 16.

The economics are good for Amazon, because they’re able to offset the cost of shipping with a higher average price point. It also means that shoppers aren’t buying for immediate consumption, but may instead be buying for consumption in the office, the car, and any other environment where they’re likely to consume the product.

3. Click and Collect

The growth of click-and-collect is leading some brands to explore the potential for impulse merchandise display at the collection point. Whether in-store, at automated lockers, or at off-site pick-up points, the idea is that shoppers would be given an opportunity to add to their order at the point of collection.

However, there is resistance among retailers to add friction at the collection point. That’s because shoppers have typically already paid before they pick up their orders, so the transaction is already complete. Asking the shopper to initiate and complete a second transaction may add too much complexity for both retailer and shopper.

But as frictionless payment technologies improve and are more widely adopted, it may be possible to simplify these secondary transactions using tools like Apple Pay. And there may be opportunity for brands that are willing to fund and manage the process.