The Conundrum of Conversion vs. Loyalty

April 2nd, 2008

Given the marketspace that ExpoTV occupies, we’ve been fortunate to get a bit of a birdseye view on the comparison shopping space and spent a lot of time with leaders in the space, including Smarter.com, Wize, Pronto, Shopping.com, Yahoo! Shopping, Nextag, PriceGrabber and others. They are all great businesses run by great people and no doubt the comparison shopping engine space has been one of the great internet value creation vehicles.

Part of what has enabled that value creation is the straightforward business model: acquire customers for x and ‘resell’ as many of them as possible for y to interested retailers. While obviously the price of acquisition and resale matter a lot, those metrics are largely driven by the market. The critical endogenous success metric of any given engine is the conversion rate. Through rigorous testing, the engines have discovered that the faster you move people off the site, the higher the conversion rate. The only problem with the “maximize conversion rate” approach is that it is extremely hard to build recall let alone loyalty with people who spend less than 10 seconds on your site. (Here’s our “collision of commerce and media” moment…imagine a media property focused on getting you off their site. Doesn’t even compute…) Eventually, though, someone says, “hey, our conversion is great but isn’t our cost of acquisition a lot higher than it would be if we had some loyal users?”

I wasn’t there at the merger table, but I’m sure this was an issue that the guys at ePinions and Dealtime thought they were about to solve when they came together to create Shopping.com. Unfortunately, it didn’t work out that way and we’ve heard second-hand tales about general managers who left Shopping.com completely frustrated with their inability to find the magic formula to build loyalty without crushing conversion & it may not be much of an exaggeration to say that every shopping engine since then has gone through the same painful exercise. Perhaps it’s no coincidence that the one who appears to care the least about loyalty is the one who sold for the biggest price (Nextag).

But is the idea of having loyal visitors (read: returning visitors who cost nothing to acquire) and a high conversion rate a fool’s errand or just a complex issue that’s yet to be solved? There’s some evidence that it’s possible and even that dogmatically clinging to the success formulas of the past may be preventing the industry from moving forward. When we point to a DMNews article where Smarter.com associated the launching of our videos with a 20% increase in site loyalty, people with experience in the industry will laugh in derision at the idea of a 20% increase in loyalty. It’s as if a unicorn just walked in the room; it’s so outlandish that our eyes must deceive.

Still, there’s no lack of innovation and effort to crack the code. Wize has their Wize ranking & Pronto has “Likes”. We were fortunate enough to sit down a couple months ago with Stephen Musikant and Daniel Keller of the successful European price comparison site, Ciao. They have famously loyal and active users. I asked them how they managed the tension between conversion and loyalty. To paraphrase their answer they essentially said, “We don’t. We focus first on loyalty.” Now that’s novel.

Entry Filed under: Collison of Media & Commerce