LBS logo London experience. World impact.

You don’t know your customer (unless you’ve mastered mobile)

Mobile isn’t another online channel. Nitish Jain shares insights for key decision-makers on promotions, product search and return policies

By Nitish Jain and Anna Johnston 16 April 2018

you-dont-know-your-customer-LBSR-974x296

Thanks to our ever-present mobile companions, we now have digital habits. The adoption of mobile is influencing behaviour across online activities from search to social media. With smartphones getting smarter, mobile online activity is only set to surge.

Search engine use on mobile is popular across developing and developed markets, with 65% of online users accessing it at least monthly, according to Google’s 2017 Consumer Barometer Study. The growth of high-speed mobile networks and more powerful smartphones have seen mobile become people’s most important, or only, computer.

In 2016, mobile web usage overtook desktop for the first time, a milestone which threatened companies reliant on traditional PCs. Mobile shopping (m-commerce) is growing at 25% each year – Forrester expects online retail sales in the US to reach US$480 billion (£347 billion) by 2019. The share of the m-commerce pie is also becoming larger: BI Intelligence forecast that m-commerce will reach 45% of the total US e-commerce market by 2020.

So here’s the question: are managers equipped for a mobile-first world? And how will seismic shifts in consumer habits hit soon-to-be obsolete, conventional online strategies? What are the likely effects on organisations’ bottom lines?


Forget online, offline. There are three channels now


Nitish Jain, Assistant Professor of Management Science and Operations at London Business School, is working on a stream of research to offer focused pointers to marketing and operations managers. Dr Jain believes firms must shape their strategies to maximise the potential of PC-online, offline and mobile-online.

“Mobile is not just another traditional online channel,” he says. “Its ubiquitous access, ability to track consumers closely and small-size constraints make it distinct. Managers need to know how a consumer behaves differently when they shop on mobile versus when they shop on more conventional online channels such as the PC.”

Over the last decade, organisations have observed consumer behaviour and bent their strategies to their customers’ will. Problem is, our behaviour on mobile is different from that on desktop computers and other larger devices. In other words, a mobile-dominant future demands a mobile-specific strategy, notes Dr Jain.

Our crystal-screen companion defines the way we search and shop. Having Deloitte tell us the average American checks their phone within five minutes of waking up leaves little doubt that our searching brain is always switched on. But there are major forces – from time and location to even the weather – shaping consumer purchase decisions.

Take, for instance, our commutes.

A typical day-in-the-life of regular people sees them wake up in the morning and tap their phone to read their emails before riding the 40-minute subway or tube to work. The carriage is always crowded. Every weekday, at roughly the same time, the average person stands with their mobile clasped in their hands; tapping, scrolling, escaping from the train around them.

Conventional wisdom says that stress from crowds in confined spaces does not make a pleasant shopping experience. Anindya Ghose, a professor of information, operation and management sciences and marketing at New York University, penned the book, Tap: Unlocking the Mobile Economy. He debunked the myth that crowdedness is bad for shopping. Ghose ran a large-scale field experiment on crowded subways in China, sending people offers on their smartphones. He found that as the level of crowdedness increased, people were more likely to accept and redeem offers on their mobiles. Redemption rates on mobile offers sent in crowded settings were, at times, twice as high.

Mobile immersion is a way for travellers to escape uncomfortable crowds and gain a sense of control over their privacy and space. Clever advertisers have cottoned on, offering a much-needed diversion.

The crowdedness phenomenon is just one example of a force powering new and unexpected behavioural patterns, says Dr Jain. Another is shopping during unsociable hours. “We find evidence of disproportionate mobile use versus PC use early in the morning and late at night.” If the upside of mobile is that it is expanding customer engagement, the downside is that crack-of-dawn and late-night shopping leads to more impulsive purchases.

“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.”

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.

How well do you know your customer?

Your customer has different mobile personas depending on what’s influencing their day. Ask key questions across three dimensions to enrich your customer view.

Where is your customer?
What is your customer doing?
What is your customer feeling?
What does your customer desire?

Comments (0)

5858_LBSR July_Footer banner wide Mobile_974x272

Subscribe to LBSR

Get the latest ideas and opinion from London Business School’s experts, straight to your inbox