How to Increase the Average Order Value (AOV)
Ideas on how to get customers to spend more on your ecommerce site
Customer acquisition costs are rising for many Direct to Consumer players due to greater competition. It is increasingly becoming difficult to hit the break-even number for a number of brands, let alone make profits. With high advertising costs, marketers need advanced strategies to convert traffic into profit. While marketers are focused on optimising traffic, reigning in acquisition costs and optimising the funnel, they also need to focus on increasing the amount spent by users in every transaction.
Growth can be driven by More Users or More Usage
Encouraging customers to buy more while on-site will ease off pressure to bring in new customers to meet revenue targets. It is more economical to get an existing user to buy more than to bring in a new user. At Milkbasket (a grocery startup) we were focused on increasing the average order value (AOV) for a user. This meant coming up with product ideas to enable upselling to marketing ideas like bundling.
Average Order Value = Total Revenue / Number of Orders
Set up your product analytics so that the AOV trend can be viewed easily. Companies try various tactics to drive AOV higher. The most obvious tactic is discounting. It is easy to give a discount on a few products so that the demand is higher. But that is table stakes and doesn’t solve the purpose of driving profitability in a sustainable way. The aim is to sell more inventory in every order and increase profits so that there is long term viability of the business. Increasing the AOV can become a major differentiator between business success and failure.
1. Optimise Free Shipping Threshold
Offer free shipping for orders that are at least 30% higher than the current AOV. Once you have configured the amount above which shipping is free, communicate the offer to users via email or notification campaign. To reinforce the offer start with communicating again on the home page followed by the cart page. Optimise the communication based on how the users are active to purchase more.
Fable Street offers free shipping to international buyers for purchase above Rs. 20,000.
Free shipping is a big motivator in the Indian context to drive more usage. Keep in mind that free shipping is everywhere and is standard fare during the sale season.
2. Bundling and Bulk Deals
Create bundles that are logical buys and offer a small discount (yeah, I said we’ll not talk about discounts). Think of what items work well together. Bulk deals work similarly. Create a 2X or 3X bundle of items that will be used frequently by the buyer. Customers like purchasing products in groups, as it usually adds value to their buying experience by saving cost and time. Sometimes it just helps them from in looking for other products when frequently bought items are shown alongside the main item. Analyse which products do customers usually buy simultaneously? Which products could encourage them to venture upon spending more?
At Milkbasket bundling helps in driving up the AOV, as grocery buying is considered a chore by many. It helps users to order items in bulk for the week addressing their pain of creating manual lists to reorder again.
Heelium, a newly minted D2C brand selling apparel made from bamboo fibre offers a small discount on bulk buys
3. Cross-sell And Up-sell
This is an obvious one but needs to be carefully crafted at the product level so that this strategy can scale. This needs to be enabled using “Similar Products,”, “Frequently Bought Together,” or “You May Also Like” feature on the website. This needs a data layer that the analytics team can work on to create cross sell suggestions for the user.
The product will also need to be designed in such a way that there is enough real estate available to display cross sell candidates without interrupting the buying flow. Cross sell suggestions can be shown not just on the product page but also during checkout.
Zara does an excellent job to complete the look and cross sell other items.
On the other hand, upselling involves strategic positioning of items that are a better version of the item that the customer may be interested in. There are multiple ways in which upsell can be made a success. Some of them include offering a version upgrade, including warranty in the better version or creating a limited time availability of the better version.
HP shows different versions of the products with and additional warranty bundled with the more expensive version.
4. Gift Cards on Spend Threshold
Gift cards are great incentives, boosting the likelihood of users returning to buy again in the future. Create an incentive program which offers a user discount on his next purchase for creating a minimum order basket in the current purchase. Price the gift card in such a way that it is not a heavy discount and does not deplete margins considerably. It should, however, be attractive enough for the user to add more items to the basket. Do not make the rules very complex and be transparent with the terms. Grocery and credit card companies use gift vouchers quite well.
Amex offers travel vouchers if a user spends Rs. 1.9 Lakhs in a year. This is attractive for the user who has crossed a lakh in spend to use the card more and avail the voucher.
5. Loyalty Program
Loyalty programs like free delivery, standard discount or early access through the year drive higher purchases by the customers. Prime customers are much more lucrative and tend to spend significantly more than other Amazon shoppers.
Loyalty programs should not be seen as a short-term strategy, many companies get the loyalty program wrong by not designing it right. The user needs to get motivated to purchase more once he subscribes to the loyalty program. If the program is designed in a way that the user comes for an immediate discount the program will not help drive up AOV.
Airlines loyalty programs are a game changer here. Many customers end up compromising on flight times just so that they can fly with the airline whose loyalty program they have subscribed to.
6. Limited Time Deals
Limited-time deals are a tactic based on the scarcity principle. In simple terms this means, the more difficult it is to obtain a product, the more valuable it becomes. Adding an expiration date to a minimum order size offer adds a sense of urgency and pushes users into action. Put a countdown timer in the website header to push users to a higher AOV.
Cosmetics sites use this tactic very well to drive users to purchase more.
Kama Cosmetics actively communicates with users to drive them on the website for limited time offers. A complimentary hair conditioner is auto added to the cart once the order value exceeds Rs. 5000.
7. Add on Low Cost Items
Milkbasket shows impulse purchases like chocolates and chips on the order basket page similar to the way there are low cost items kept at arm’s length in a supermarket checkout line.
Low cost add-on items displayed at the right place enable users to give in to their impulse buying behaviour. This is relevant not only to groceries; Amazon suggests low cost items like computer peripherals and stationery to users buying electronics and utility items. Adding a couple of low cost items can increase the overall purchase basket size by 10% thereby increasing the AOV.
Adjusting the payment terms of your pricing can be a brilliant way to close large ticket deals. Zero cost EMIs can enable users to consider purchasing a more expensive item in high cost items categories.
Instead of discounting and depleting your margin try to partner with a financial institute to offer users EMI options. Communicate the availability of financing options to users upfront so that that they can consider buying the more expensive versions of the product.
Use pricing strategies to drive up the AOV. Look up some of the ideas on pricing in this blog post: Pricing Strategies
Companies use multiple strategies in unison to drive up the AOV. Here’s a teardown of a Flipkart product page for a TV.
Flipkart Product Page Teardown
In conclusion, increasing the AOV will enable the company to counter rising customer acquisition costs. Invest in data analytics and product development to make these strategies scalable. Keep innovating on how to increase your AOV while delivering value to the users.