Payment options can complicate e-commerce ROI

paypal logo
Credit: Zach Miners/IDG News Service

Under the best of circumstances, figuring out e-commerce ROI is challenging. The e-commerce chief at RainbowShops.com found that PayPal support adds a lot more complexity.

RELATED TOPICS

Under the best of circumstances, figuring out e-commerce ROI is challenging. Say you're running three ad campaigns and sales grow by 8%. Which campaign made the needle move? Did any of them? If you could go back in time and track sales from those identical shoppers during those days, what would they have done had none of those three ads run?

The ROI problem is that shoppers' purchasing activities ebb and flow normally, so their exact impact is considered all but unknowable (even if, for example, you ran a single campaign and sales immediately shot up 70%, you wouldn't be able to say how much was attributable to that campaign).

I was talking last week with the e-commerce chief over at an apparel site called RainbowShops.com. That online maestro, David Cost, vice president of e-commerce, mentioned that, back in September 2015, his team added PayPal as a payment option.

Almost immediately, 20% of all of Rainbow's transactions were using PayPal. But there was no e-commerce revenue increase attributable to PayPal. In other words, the site only experienced a routine revenue increase.

This forces an e-commerce ROI question. Did the change indeed have no revenue impact? Would all or some of those PayPal transactions have gone elsewhere had the site not started accepting PayPal at that moment? Or would the PayPal users have simply used a Visa card or one of the other site payment options?

To keep this discussion pure, Cost looked at whether the payment option addition had any net income impact — which can prove a lot more valuable than a revenue boost — and found nothing of consequence. Specifically, he found that the switch had no appreciable impact on transaction fees (“interchange proved to essentially be a wash”) and it did generate a slight drop in fraud. All in all, nothing big.

With those distractions set aside, that gets us back to the revenue ROI question. The question is really: How big a deal to shoppers is the form of payment they use? The answer: It depends.

Among the major card brands, there is little likely impact. Given the spottiness of retailers' acceptance of American Express, most Amex customers also have a MasterCard or Visa, so adding Amex won't change their behavior. 

But PayPal is different. Many people have grown fond of PayPal — its market share certainly blows away the combined market shares of ApplePay, AndroidPay, Samsung Pay and all of the other mobile payment options. (Starbucks' system is widely used, but that's not a true mobile payment option.)

Cost said PayPal could prove to be an ROI factor if you factor in issues around the path of least resistance. In other words, if shoppers are most comfortable paying in one way, they will want to continue doing that.

“The tolerance for friction [among shoppers] is getting less every day,” Cost said.

In other words, it’s entirely possible that the PayPal move saved sales that a year or two ago wouldn’t have needed saving.

I would submit that any influence on sales really speaks to how much that shopper wanted to do that purchase from you. Let's say the customer is trying to purchase a piece of consumer electronics that he/she knows is available from a half-dozen similarly reputable sites, and all at the same price and with the same shipping terms.

Under that scenario, the slightest hint of friction could easily send that shopper to one of those other sites.

But that is a very rare scenario. Between customer service and speed of delivery and promised tech support, very few e-commerce purchases today are identical.

If this topic interests you and you're going to be in the New York City area on March 1, Cost will be on an e-commerce panel that I'll be moderating at a business conference. Drop by and embarrass us all by asking really detailed questions. I'm immune, though. If it sounds like a hard question, I'll just punt and say, "Excellent question," and throw it to a panelist. Being the moderator has its perks!

This article is published as part of the IDG Contributor Network. Want to Join?

RELATED TOPICS
Call on line 2! Six ways to add a second line to your smartphone
View Comments
Join the discussion
Be the first to comment on this article. Our Commenting Policies