To increase spending, reduce friction for your customers

"How can all retailers learn from Amazon Go’s recent experiments?"

Remember the first time you watched Star Trek and saw items magically appear in the replicator on demand? The advent of mobile shopping, in-home on demand buttons, and on demand replenishment services is making that science fiction become more of a reality.

[Star Trek Replicator image via: http://memory-alpha.wikia.com/wiki/Replicator]

 

What’s interesting is that as much as we imagined having unprecedented purchasing power at the tips of our fingers would change our lives, we perhaps didn’t bargain on how it might change our brains and behavior.

Frictionless purchasing is great for situations when customers need something as soon as possible and don’t have a lot of time to spend. Where it causes some concern is a situation comedian Patton Oswalt has summarized “I’ve been drunk enough to order stamps online.” When people lose the friction and barriers to shopping, sometimes they make purchases inadvertently or ones they may regret.

How does frictionless purchasing actually affect human brains? It’s obviously a new field of research, but the parts of the brain that form the reward centre are at work.

Back in 1998, Neuroeconomists at MIT discovered that credit cards, while convenient, did not connect purchasers enough to their purchases the way even debit cards do. This makes it easy to make the purchase in the moment, but not as welcome when it comes time to pay the bill. If something as manual as pulling out one card over another can have such a strong effect on our brains, what can pushing a button, touching a phone to a touchpad or even using a fingerprint do to the experience?

Something MIT has figured out more recently is that frictionless payments not only make people more likely to purchase impulsively, they are more likely to get them to pay more per purchase.

Of course, this is good news for retailers who are looking for lower cost methods to increase cart size. It’s also good news for businesses that are losing a percentage of sales to online outlets… It turns out if you make the experience as easy as possible at point of sale, you can reap the rewards.

"If you make the experience as easy as possible at point of sale, you can reap the rewards."

That’s the basic thinking Amazon is running with with their new concept store, Amazon Go. Customers tap their phones on the turnstile when entering and leaving the store the way you might for a subway trip. Everything they pick up in the store is added to their cart and then they simply leave and are charged for the total order.

 

For convenience based businesses, this could be a new trend. It cuts down on overhead, reduces shrink, updates inventory in real-time and gives deep analytics to a retailer about what people are purchasing and when (consider that this data can be cross-referenced with weather, for instance, to discover that more cookies are sold on rainy days.)

Amazon was right to start this experiment with a grocery store. It’s hard to imagine another retail endeavor with such ripe potential for impulse purchasing. For those with carts, your only limit is your cart. For those with baskets, your only limit is what you can carry. We’ll have to watch to see what the results are of this experiment, but the science tells us this will lead to increased purchase frequency and larger cart size.

An interesting recent change in purchasing is the increase in tips caused by adding tip “buttons” to POS terminals in restaurants. When presented with tip percentage options, people often choose a higher tip percentage than if they had paid cash. There is an interesting bit of cognitive science here. The buttons play on three things – the suppression of friction makes it easier to spend more without consideration, the options indicate to us that perhaps others tip more than we might, and that can create a competition reflex, and we simply have a preference for round numbers. This leads to happier waiters, and much happier restaurateurs as a result.

"When presented with tip percentage options (in POS terminals), people often choose a higher tip percentage than if they had paid cash."

How can retailers harness the power of frictionless purchasing? Getting your company fully up and running with a completely frictionless payment system can be expensive and may result in downtime or lost sales, so it’s not always easily done.

If you’re not in the position to switch to a new system, consider adding options. Square is one of many companies offering simple payments that only require a phone or an iPad to work. These systems often add payment options like Paypal, which aren’t available easy elsewhere.

Another option for retailers that seems to be working is the hybrid of buying online and picking up in-store. This way, you’re capitalizing on people who are incorporating shopping with you into their normal routine. If you can make this frictionless, so they can grab and go, you could see lift in your sales and cart size. Salesfloor has a ‘reserve in store” feature coming in 2017. For now, purchases can be made online and shipped to the customer’s home. Stay tuned!

If your business is primarily online, you can consider testing options for your cart procedure. Amazon’s 1-click purchasing is popular for the simple reason that users can shop and go as long as their details are up-to-date.

Looking at the science on the tip button, there are some interesting ideas for e-commerce retailers. Suggesting items that would fill a cart for free shipping or entitle a customer to a perk is an easy, frictionless way of increasing cart sizes.  Salesfloor associates can offer these types of perks through a marketing campaign to their clients or more generally, by simply engaging with customers as they shop online.

"Not every method of making purchasing frictionless comes down to technology."

Not every method of making purchasing frictionless comes down to technology. Businesses can look to companies like Apple and Sephora for guidance on what the future of payment might look like: having terminals in hand throughout the store, on demand, allowing customers to walk up to a sales associate, skipping big lineups. After the transaction, the customer just walks out. Receipts are sent to their desired email, so they can retrieve them as needed.

The psychology of shopping is an emerging and rapidly changing area of study, but some basic human behaviors remain consistent, which makes it easier for retailers to make small, educated tests of their markets to see whether these tests result in larger carts and higher purchase frequency. We think that retailers who make this leap will have their choice of consumers ready to spend some serious money.

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