Metric sales

Study: Why AOV has ousted CLV as the most valuable metric for e-commerce executives

The past two years have seen a rapid evolution of digital retail operations, and perhaps more importantly, led to a sea change in the role e-commerce plays in the overall shopping experience.

“The very idea of ​​what part of the purchase journey is digital versus physical has changed,” said Ricardo Belmar, director of retail and CPG partner marketing at Microsoft in an interview with Retail Touch Points. “We’ve been talking for many years about how digital channels influence the purchase journey, whether or not the consumer ends up buying on a digital channel versus a physical channel. This path has become more complicated now, and much more interactive between digital and physical channels — consumers are hopping from channel to channel, and digital channels matter a lot more now because of this influence.”

These changes are reflected in Namogoo’s annual survey of e-commerce leaders, conducted this year in partnership with Microsoft, which assesses where retail leaders will focus their investments in the coming year and how they measure Success.

The 2022 survey revealed some notable shifts in leaders’ priorities, including:

  • As e-commerce accounts for an increasingly large share of sales, the added cost of doing business online is harder to ignore, make cost optimization the number one priority e-commerce executives this year;
  • Average Order Value (AOV) has replaced Customer Lifetime Value (CLV) as the primary metric leaders will use this year to measure success; and
  • Increasing order sizes and finding ways to reduce costs both require a finely tuned data management operation. This, combined with stricter data privacy regulations, has made data collection and enrichment an investment priority for 2022.

95% of leaders want to prioritize cost optimization

Last year, cost optimization wasn’t even among the top three investment priorities for e-commerce executives, but in this year’s survey, it ranked number one, with 95% of respondents calling it a priority and 61% giving it high priority status.

“During the pandemic, many retailers have learned that operating and executing e-commerce ends up costing more than you think,” Belmar said. “We’ve always talked about high shipping costs if you’re running a successful e-commerce site, but it’s more than that. There’s a lot going on behind these operations that introduces a higher cost per customer, [and] per transaction than you would expect in a physical store. This has caused retailers to rethink a bit about how they can optimize these costs in order to streamline the buying process for e-commerce. »

To offset these additional costs, retailers are looking to maximize their existing investments. Among other items, leaders listed as high priority included Loyalty programs (51%) and website performance (43%). In comparison, things like on-site personalization, affiliate and partnership programs, and email and SMS marketing were much less likely to be prioritized. With so much uncertainty in the market due to the ongoing pandemic and supply chain disruptions, focusing on optimization, loyalty and performance gives retailers a better chance of weathering any other unforeseen twists and turns that may arise. could happen in 2022.

Push for cost optimization puts AOV in the spotlight

Another shift in priorities concerns the metrics that e-commerce leaders consider most important. Average order value (AOV) is now the most essential metric for executives, up from fifth place in 2021: 47% of executives surveyed said AOV was a high priority this year, compared to 34% in 2021. Next, customer lifetime value (CLV), conversion rate optimization, customer acquisition cost (CAC), and new traffic acquisition all ranked higher.

With the costs of customer acquisition rising and competition increasing online, retailers are looking to maximize every chance they can to increase their profits, Belmar said. “Cost optimization has become more important, but these digital channel costs are higher than they were before,” he said. “If my AOV is higher, that gives me a bit more headroom to overcome some of those higher costs..”

It’s a notable shift toward a transaction-based metric and away from the long-term CLV metric, which was executives’ primary metric in 2021. Belmar said he believes it’s part of an evolution in the way retailers view CLV itself. “Many people I’ve spoken to view lifetime value as a measure of loyalty,” he said. “The more loyal a customer is, the more likely they are to buy from you and the more likely they are to buy more in a given transaction. So, a higher AOV has the potential to expand CLV down the road, if they maintain loyalty and keep that customer coming back.

Businesses of all sizes struggle to use their data effectively

Given these other shifts in priority, it makes sense that data collection and management would be a key focus for e-commerce leaders in 2022.”There is more than before a desire to have control and guidance on what that buying journey looks like for their customer“, Belmar said. “It’s not enough to understand that your customer is jumping from one channel to another, you want to know why and how they do it [so you can deliver more personalized experiences]. But that means you need to get more insight from the customer data you have. »

There’s just one problem – retailers are struggling to do this. As is always the case in retail, getting the data isn’t really the problem; taking advantage of it is. Interestingly, the bigger the company, the bigger the challenge, with enterprise-level companies (annual revenue over $150 million) finding this more problematic than any other group. The vast majority of business leaders surveyed (79%) reported having difficulty using the data they have effectively, followed by SMEs (annual revenues of $29-50 million) at 78%, and mid-market (annual turnover of 50 to 150 million dollars) to 68%.

The task also seems more difficult for hybrid retailers (those that operate both online and offline) compared to pure e-commerce retailers.with 81% of hybrids say they find it difficult to use their data, compared to 67% retailers who only do e-commerce.

“I think what a lot of retailers have learned is that they have so much data that a lot of it isn’t clean,” Belmar explained. “And because it’s not clean, it can disrupt any analytics platforms you might be using. It can be simple things like a customer might appear to be multiple customers in the dataset just because of how they interact with you, but you really need to know if it’s the same customer or not.

While these issues affect retailers of all sizes, the investments companies plan to make in 2022 to address them vary significantly by size. For SMEs, the main data collection investment is in a CDP platformwhile for medium-sized companies it is data enrichment efforts, and for companies it is collect non-PII data (personally identifiable information). This most likely reflects the level of sophistication of data operations of each size of retailer – larger retailers tend to have more mature data collection and enrichment operations and therefore turn their attention to the next looming issue – regulation increased data privacy.

Finding New Ways to Personalize in the Age of Data Privacy

Stricter privacy settings on smartphones and the impending “death” of third-party cookies in 2023 will have a big impact on the personalization and audience development efforts of all retailers, regardless of size. It is therefore not surprising that 79% of executives responding to the Namogoo survey seek to personalize their marketing efforts without involving PII data, such as the use of intent or behavioral data.

“There is also a strong desire to develop more first-party data sources,” Belmar added. “An example I see of this [is the increase of] retail media networks (NMR). Everyone talks about this capability in terms of the extra revenue the retailer gets, but I think there’s even more value in the data that NMRs help generate, because that data comes from your own website, from customers who already interact with you. When you combine that with the other data you have, you get a lot more utility out of that data.

But that again brings us back to the core problem that most e-commerce operators face today – effectively leveraging the data they have. “You need clean data, and a lot depends on a good AI and machine learning platform“, Belmar said. “These are not things that can be done with just basic algorithms. You need a smarter platform to really use this data.”