July 18, 2005
Retail Industry Focus
The Conversion Rate Myth
by Craig Thompson
Selling in retail requires quality execution that can be divided into two distinct steps
1) getting potential customers in the door; and
2) ensuring that they had a positive shopping experience and made a purchase.
Great locations and great marketing campaigns that bring people into your store are not enough. Retailers must pay close attention to how shoppers interact with their stores and with their employees if they are going to maximize sales.
Myth Busting
A poll of executives at one Brickstream retail customer revealed a commonly held corporate belief that conversion rate was in the neighborhood of 85-90%. With such a high conversion rate, conventional wisdom reasoned that there was little room for improvement. Therefore, there was limited value to measuring conversion rate. Right? Wrong.
One executive doubted the validity of such a high conversion rate and initiated a program to obtain a concrete measurement to see if there was indeed an opportunity to increase same store sales. A subset of stores was equipped with Brickstream technology that was integrated with store point-of-sale (POS) data to derive the true conversion rate by day and time of day.
Eyes were opened within the company when they discovered that actual conversion rates were less than 50%. When adjusted for multi-party shopping units (couples and families), the conversion rate was still below 65%.
There is clearly a lot of room for improvement.
Measure to Manage
By employing conversion rate measurement, executives are better equipped to compare the true performance of stores on an equal footing. And, they are able to quickly see the fruits of new layouts, new promotions, new staffing practices, or new procedures. With this almost-immediate feedback, it is very easy to know what works and what does not work.
Using Conversion Rate to Empower
A major North American retailer of electronic media recently measured the conversion rate within a subset of their stores with the purpose of trying to improve conversion without adding staff or capital expense to their operation. The store managers were empowered with daily arrival and conversion rate data and asked to do two things to try and improve the conversion rate in a very short amount of time.
First, they were asked to lead their team members in adhering more tightly to existing company policies.
- Monitor and eliminate out of stocks and replenish supply regularly.
- Consult with, and up-sell shoppers on the floor rather than at the register (when it is too late), or after they have left the store empty handed (when it is really too late).
- Open additional points of sale before the line gets long.
- Perform intra-minute task scheduling to maximize employee to customer interaction (re-stock shelves before the customer rush that we know is coming).
Second, the store managers were empowered to make changes in their store and in their procedures that were “outside of policy.” The store managers were asked to keep a log of changes and share them with the test administrators. This method ensured that the most successful changes could be replicated in other stores and the less effective changes were identified for modification. Store managers were excited that they could try out ideas that they have had for years, but were prevented from implementing. Sample activities included merchandising changes, bundling of products, and “sidewalk sales” on good weather days.
Results
In just 3 weeks, the test stores improved their conversion rate by up to 5 percentage points without adding any staff, or capital expense. As expected, the stores that had the highest improvement in conversion rate were the most engaged of the test stores.  Accurately measuring conversion rates has allowed this retailer to change a commonly held corporate belief that there was no room for improvement on conversion rates. In addition, the test has demonstrated the power of sharing data with front line store managers.
By rolling Brickstream technology out to the rest of the retailer’s stores, they can expect to see similar improvements in conversion rate, resulting in hundreds of thousands of incremental sales annually. Further increases will come when the store arrival data is used to augment their existing staffing system, and when this data is used as a key performance indicator for store and region managers.
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