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Getting clicks with casual customers

As Web sites run by both dot-coms and established companies struggle toward self-sufficiency, converting casual browsers into committed buyers represents a significant challenge.

Imagine a new restaurant that has customers lined up around the block to get in. But after they sit down and read the menu, 19 in 20 get up and walk out without so much as ordering an appetizer. No traditional business could survive such a disaster.

On the Internet, however, shoppers do this all the time--it's more the rule than the exception. But while Web site operators find it frustrating to deal with hoards of tire kickers, the Internet is so new that it's not clear what the low ratio of buyers to visitors really means, says Peter Fader, a professor of marketing at Wharton.

"Browsers-to-buyers is what it's often called," he said in a recent interview. The more formal term is "conversion," a statistic derived by dividing the number of people who take a desired action on the site by the number who visit it. If 100 people click onto the site in a given period and five buy a product, ask for more information, register, subscribe, or act in some other desirable way, the conversion rate is 5 percent. In fact, conversion rates of 2 percent to 5 percent are fairly typical today; 10 percent or higher is considered remarkable.

To explore the significance of conversion, and to look at ways conversion rates might be raised, Fader organized a day-long event in Philadelphia on May 30, "From Browsers to Buyers: Online Conversion Workshop." The attendees ranged from academics to Web site executives, and the speakers included Ron Farmer, senior director of consulting company McKinsey & Co.; Farhad Mohit, chairman of shopping site; Jerry Shereshewsky, vice president of direct marketing for Internet portal Yahoo; and John Jongbae Bu, co-chief executive of financial-services investment firm Goldman Sachs Ventures.

Conversion is gradually becoming one of the most important statistics for gauging Web site performance, offering more valuable information than statistics that were emphasized in the early years of the Internet, such as page views, Fader notes.

"It used to be, 'If we build it, they will come,'" he says, describing the philosophies of early site designers. "Sure enough, they came and they looked around and they left and they didn't come back."

With the collapse of so many dot-coms in the past year, more attention is being paid to how a site will contribute to a company's bottom line, he says. "Conversion really is the natural step as you go from traffic to purchasing," Fader points out. "It's the thing that links them together."

Why do they leave?
Customers may abandon Web sites for many reasons aside from deciding they don't want the products or services they find there. A site may be aesthetically displeasing or confusing to use. Taking action may require too many steps, or the site may ask intrusive personal questions. There may be technical glitches, such as pages that load too slowly.

Any obstacle can quickly shake a customer's resolve. Jumping to a competitor's Web site is much easier than driving to another department store.

The best example of a successful site is, where the conversion rate is a stunning 15 percent, Fader says. "That's remarkable when you take into account how many people use Amazon as just their card catalog," he notes. "It means they're doing something right."

But just what makes Amazon work so well is not entirely clear. The site seems to be visually appealing and easy to navigate, and Amazon has a quick one-click purchasing process. But the study of conversion is in such an early stage that there are no firm rules about what works and what doesn't.

Nonetheless, many people who study the Internet are convinced that the successful companies of the future will be those that have a clear understanding of what drives conversion rates. In a March 6, 2000, column in Fortune magazine, Internet analyst J. William Gurley described conversion as "the most powerful Internet metric of all."

If a site spent $10,000 to attract 5,000 visitors and had a 2 percent conversion rate, it would have 100 transactions at a cost of $100 each, he observed. With a 4 percent conversion rate, the transaction cost would fall by half, to $50. "As the conversion rate goes up, not only does revenue rise, but marketing costs as a percentage of sales fall, representing true leverage," he argued.

It's easy to understand why conversion rates are of vital concern to both struggling dot-coms and large established companies that have launched Internet operations that they hope will pay for themselves in time. With the insight gained from conversion data, a company might learn that an apparently effective advertising campaign is really a failure: It may draw large numbers of visitors, but too many don't make purchases.

It depends on the person
Gurley points out that conversion rates vary for different kinds of customers. Returning customers typically have higher conversion rates than first-time visitors, and conversion rates tend to go up in the holiday season, when customers are eager to buy.

Some data also indicate that older sites have better conversion rates. That may be because people visit several times before buying--or because sites survive long enough to be considered "older" only if they solve the conversion-rate problem. Slicing the conversion data can reveal how the site appeals to the most valuable customers.

"Small gains on low conversion rates can have unbelievably powerful effects on a company's performance," Gurley wrote. "What's more, focusing on conversion rates will help improve all elements of a company's business, including performance, convenience, customer service, advertising effectiveness and word-of-mouth advertising as a percentage of sales."

Nonetheless, according to Fader, a site that spends millions to achieve a small improvement in its conversion rate may be wasting money. Often, the key to driving conversion rates higher may lie in implementing relatively inexpensive but creative ideas.

For example, a recent article in Business 2.0 wrote about, an online jewelry retailer, which used an innovative approach to increase its online sales. The company sent two sets of e-mail messages to potential customers. In the first, readers of the e-mail message had to click through to's Web site to complete the transaction. In the second, however, customers could complete the transaction in a few clicks within the e-mail message itself. Much to the surprise of executives, they found that conversion rates among the second group were five times as high as the first.

To read more articles like this one, visit Knowledge@Wharton.

All materials copyright © 2001 of the Wharton School of the University of Pennsylvania.