Tailor your search offering
Mobile-online shopping isn’t like PC-online shopping. Dr Jain says: “Mobile gives you almost 24/7 access. You can search for whatever you desire multiple times a day.” In other words, it’s easier to search for longer. “In contrast, a PC offers a static environment that constrains your ability to search for longer periods.”
He says: “Mobile affords you more time to search and therefore a larger search budget. But the device is small. You can only evaluate a few products at a time.” This makes searching inefficient and pushes up the search cost, says Dr Jain. The combination of the two – having a large search budget and a high search cost – determines the type of products customers pick: niche or popular.
In his research, ‘Impact of Mobile Channel on Demand Concentration’ with Tom F. Tan of Cox Business School, Dr Jain examined sales concentration (the share of sales across niche and popular items). They collaborated with a large Indian fashion online retailer, which shared eight months of transactional data. During the first four months, the retailer sold products through two channels: mobile and PC. Over the final months, the retailer shut down the PC channel and focused entirely on mobile.
“In the offline world, 20% of products typically accounted for 80% of sales,” explains Dr Jain. “But with the advent of online markets, retail sales became more distributed and niche products became more popular.” This shift from bestsellers to niche is known as the long-tail effect. Online search functionality gave consumers the ability to hunt for exactly what they wanted. Unique became the name of the game: the top 20% of products accounted for much less than the usual 80% of share.
E-commerce growth was a coming of age for artisanal brands and rare and exclusive items such as Not On The High Street. But then something strange happened. Instead of rendering the advantage of PC-based channels, mobile appears to be reversing it.
Dr Jain explains: “When e-commerce arrived and firms realised there was demand for niche products they started expanding their portfolio. These products were profitable. But mobile is reversing the niche-product trend.” The restrictive search features such as the tiny screen and single tab browsing (high search cost) seems to override the gain of anytime-anyplace access (large search budget) which leads consumers to fall back on bestsellers.
Dr Jain found that mobile increases the share of popular products purchased by approximately 5% compared to the PC channel. The mobile-led concentration of sales towards popular products echoes pre-online brick-and-mortar store sales. What’s more, purchases made via phone have a bigger share of top search results. Taken together, these results suggest that the mobile channel's higher search cost far outweighs its larger search budget.
Takeaway: Display the right products on the right channel. As a manager, carefully rebalance your portfolio. If your firm is set on selling niche products, manage your discounts. Modify search offerings to your customer based on the data you already hold. Refresh your product display more often on mobile. Even if you present your customer with abundant choice, they won’t make use of it. Mobile functionality limits people’s ability to respond to diverse product offerings on their portable friend.
Carefully curate your discounts
Mobile-online and PC-online continue to give with one hand and take away with the other. As well as high search budgets and big search costs, mobile captures intelligent customer information. Ghose neatly put it, “The smartphone plays the role of a personal concierge – a butler, not a stalker”. But evidence suggests mobile encourages impulsive behaviour. Makes sense. The brightly-lit screen gives us a grateful hit of dopamine when it fires up. According to research firm Dscout, on average we touch our phones 2,617 times every day: clicking a buy-now button just isn’t a big deal.
The less spontaneous environment of a desktop dampens impulsive tendencies. However, a PC is less intuitive (if we don’t log in). Without browsing data, such as cookies and downloads, a PC can’t recount our preferences – it can’t recommend something we haven’t considered searching for.
We know from Ghose that a commuter receiving an in-app offer on a crowded train can be twice as likely to redeem it, but, how likely are they to send the product back? Dr Jain observes that mobile buyers more frequently cancel orders and refuse deliveries. Impulse buying leads to unwanted items.
Product uncertainty is another issue. Dr Jain’s ongoing research is already shedding light on the mobile-return relationship. Using data from the same online retailer in India, he shows that across certain categories, such as apparel, consumers find it harder to evaluate the product on a mobile screen compared to a PC. For instance, someone buying a shirt can’t see the intricate pattern clearly on their iPhone but they buy it anyway. They’ll decide whether they like the fabric in the comfort of their own home. This level of product uncertainty leads to greater returns.
The cost is significant. Americans return more than US$260 billion (£188 billion) in goods each year, according to Optoro, a logistics company that helps retailers with deliveries. In 2015, 80% of consumers who rejected items returned apparel, just like the products being sold by the firm Dr Jain is extracting data from. M-commerce has triggered consumer behaviour that, if left unchecked, could cripple retailers.
Takeaway: “Use your customer’s information wisely,” notes Dr Jain. “Yes, mobile can help you, but your customer is a different person throughout the day.” Managers must make trade-offs. Mobile offers full sight of your customer’s preferences increasing the odds that you’ll display something they’ll like and, to an extent, decreasing product uncertainty. But displaying something your customer likes won't compensate for impulsive buying.
Carefully consider promotions at peak times – early in the morning, as people commute and late at night. Align incentives across different functional areas. For example, since impulsive behaviour can inflate false sales, closely monitor net sales. Aligning marketing KPIs to just gross sales – every transaction made including returned products – may hurt a retailer’s profitability. Instead, incentivise net sales. Scan the market for smart return policies. Retailers will eventually have to adjust their returns based on the purchase channel. Don’t get left behind.
Marketing, channel and operations managers are key decision-makers, choosing when and where to place promotions, how to display products and devising return policies. Our favourite hand-held devices demand that these decisions are tailored – they must be mobile.