For most ecommerce shops, the holiday season is a double-edged sword. Gifts make revenues rise while margins fall. Here are some do’s and don’ts to increase gift revenues .
It’s the most wonderful time of the year…
Ecommerce retailers, from mom and pop stores to big companies, are looking forward to the upcoming holiday season with a mixture of dread and anticipation. The ten biggest days for online shopping are all in November and December, as customers buy gifts for friends and family for Christmas and New Year’s day. Gifts account for an estimated $200 billion, with over $100 billion spent on gift cards alone every year. Holiday shopping accounts for over 20% of yearly ecommerce revenue. If you are running an ecommerce business in the giftiest verticals (clothes, electronics, movies, books, food, cosmetics and jewelry,) the holiday season can make your whole year.
The revenue ecommerce businesses make from gifts often comes with a whole slew of hidden drawbacks. Those drawbacks can reduce the business’ margin on its holiday sales and even leave it with a loss. Instead of raking in cash, ecommerce businesses often end up hemorrhaging money during the holidays.
Returns eat profit margins..
The main factor that kills ecommerce profit margin on gifts is returns. Free returns are increasingly becoming expected. Half of today’s retailers offer them, and those businesses see a boost in sales of 58-357%. Nobody wants to buy their friend or relative a present online, only for it to turn out to be the wrong color/size/version and for the gift receiver to be stuck with it. But for a retailer, a returned item represents a loss. The business has to eat the costs of shipping, both ways, and repackaging. Some of the bigger businesses don’t even take returned products back but route them to an auction house to be sold for pennies on the dollar. Smaller businesses typically don’t have the scale to do that, so they just have to absorb the loss.
What makes this especially painful with gifts is that the loss is typically not the fault of the business. There was nothing that business could have done to make sure that the customer remembered the gift recipient’s size or other preference. For example, when I bought my dad a pair of running shoes for New Year’s online and they were the wrong size, the shop had to pay to ship the shoes back to its warehouse, and then pay again to ship the right pair to my dad!
...So do 11th hour orders
When an ecommerce business does not accurately predict holiday season demand, order spikes (especially at the 11th hour) cause stock outages. That means the business has to make a last minute order from its supplier, and absorb the cost of expedited shipping. So not only is it losing money on returns, it can lose money on fulfillment. In other words, if the shop I bought dad’s shoes from a day before New Year’s did not forecast the demand for that size, they had to pay extra expedited shipping to get them to him in time.
Gift Customers Have Lower Lifetime Value on Average
Since ecommerce businesses have to pay to acquire their customers through advertising and promotions, it’s essential for them to maximize each customer’s lifetime purchases. There are whole books written on how to do that, but basically it amounts to upselling and remarketing. That is to say that when I buy something for myself from an ecommerce site, say, a leash for my dog, the site will try to sell me a collar and a bowl to go with the leash. It will then use the email I leave to remarket to me periodically, sending me emails and showing me ads on Facebook, Google, etc. for dog food, dog toenail clippers, etc. This way, the business can maximize its profits from me.
But with gifts, upselling and remarketing possibilities are much more limited. I’m buying those shoes as a gift for dad to check him off the list. I am not very open to upselling offers of more shoes, socks, etc. And as for remarketing, forget about it. I don’t want anything the store has to offer-I don’t even like running. So emails and ads from the store targeting me are wasted. And as for dad, I probably didn’t leave his email or phone number, and in any case he hasn’t given permission for the store to contact him. That’s assuming he even likes what the store has to offer.
What About Gift Cards?
Electronic gift cards are a good partial solution for all of the above problems. The great thing about gift cards is that the gift recipient now becomes an active participant in the gifting process. Dad now picks out the shoes he wants from the store’s catalog, solving the problem of returns for size and color mismatch. The time pressure is off, since it’s unlikely that he’ll pay the premium for expedited delivery-and he got my gift, the card, on New Year’s, without the store having to ship anything. And in the process of redeeming the card, he will be open to upselling and bundling. He will also leave a phone number or email and give us permission for retargeting.
These advantages are the reason gift cards make up approximately half of holiday sales. On the other hand, gift cards have one major drawback; they are impersonal. When I bought those shoes for dad, it was because I wanted him to know that I’d put some thought into the gift, and think of me whenever he put them on. With a gift card, the personal factor goes out the window.
15 Practical Tips to Increase Gift Sales Revenue in Your Store
How can you boost gift sales and increase gift sales revenue in your store ? This seems to be the +90 Billion Dollar question. There are books to read, lectures to go to and webinars to view, so it’s easy to get lost trying to separate the wheat from the chaff.
To make a long story short – You need to create the best gifting experience for your customers and for the gift-receives. Finding the right gift is always hard, but with great onboarding you have the power to make it much easier. Be sure to eliminate potential gifting frustration by making the gifting process as smooth and clear as possible. Take into account that many people are shopping last-minute - you don’t want to miss them.
To help you out, we’ve gathered 15 key gifting rules to follow.
The Gift Buying Experience
- Add gift services so that customers will be able to include gift wrapping, greeting cards, and take out the price slip etc.
- Enable your customers to create a greeting card - this will make the gift much more personal
- “Less is more” – Don’t offer too many products in your gifting page. The idea is to provide a good selection
- Enable different types of services to match the buyer’s card preferences – printed, hand-written, eCards
- Content is king but design is queen. Make sure your gift-giving pages are sleek and well-designed, to get your customers into a gift giving mood
Finding the Right Gift
- Feature the current holiday or event and include the date (“Christmas 2016 gifts are here”). Change the look and feel of your store accordingly.
- Note the categories of the gifts, such as gift cards, apparel, accessories, gift boxes etc.
- Make collections of gifts and gift cards by price range. Many customers have a budget and this helps them better focus on what they can afford.
- Let your customers screen products based on variables such as gender or age. It will help them to find the right gift faster. Make sure to offer gift cards in any of the options.
- Provide a link for customer support - live chat, email, phone number- so customers can get help with finding the right gift.
- Let your customer know what the deadlines are to send holiday packages to arrive on time for the holidays. People want to know in advance if their gifts won’t be delivered on time. Make sure to remove any products that can’t be shipped on time - including drop-shipped items.
- Don’t offer products that have bad ratings and reviews.
Last Minute Gifts
- Explain your shipping policy, such as products that you cannot ship to certain locations/countries, products that require specialty handling etc.
- When the deadline arrives, it’s the ‘last minute features’ time to shine. Stay in the game by offering gift cards and eGifts - let your customers know they can still send gifts that will be received on time.
- Don’t forget to enable the option to send gift cards directly to the gift receivers as well as to schedule the card arrival for a specific date (e.g. The morning of Christmas).
By providing your customers with the essentials of the online gifting experience, you can dramatically boost sales and increase revenues in your store. By doing so you give both, the gift giver and receiver, the certainty of complete satisfaction.