E-commerce Insights: Add the Fifth ‘P’ of Marketing

Turbocharge your cart with ‘payments.”

In e-commerce, add a fifth “P” to the traditional four Ps of marketing — product, pricing, promotion and placement: payments. Catalogers can see real incremental sales improvement by offering customers and prospects additional ways to pay. I’ve devoted this article to review PayPal, Bill Me Later and Google Checkout. Adding some or all of these payment methods to your site can significantly lift Web sales.

A 2004 CyberSource study shows that merchants offering four payment options, such as credit cards, gift certificates, e-checks and PayPal, get 20 percent higher conversion than those offering just credit cards.

I suspect this 20 percent statistic is somewhat inflated by the fact that the best online merchants also are the most likely to implement additional payment types. But there are real gains to be had. PayPal spokesperson Sara Bettencourt claims an average of 14 percent in conversion lift after adding the PayPal payment method to a site.

Vince Talbert, vice president of marketing at Bill Me Later’s parent company, I4 Commerce, quotes a 5 percent typical lift after adding Bill Me Later to a site. Added benefits come from an average order size bump of 50 percent to 150 percent. Benjamin Ling, product lead for Google Checkout, declined to cite specific conversion improvement statistics, given the product’s relative youth, but says early results are encouraging.

PayPal Leads the Way

After conventional credit cards, PayPal is the largest online payment type currently in use. The eight-year-old service boasts some 114 million accounts worldwide, with 30 million active in the past month. In the second quarter of 2006, PayPal handled 143 million transactions totaling $8.9 billion, for an average transaction size of $62. PayPal is growing quickly, up 37 percent in revenue year over year for the quarter. Though PayPal is owned by and linked to eBay, 35 percent of PayPal payments are non-eBay transactions.

Bettencourt cites privacy and flexibility as the leading reasons online shoppers use PayPal. She notes that many PayPal users consider money in the PayPal accounts to be “fun money,” a different category from funds they use to pay bills. Therefore, they’re more likely to spend their PayPal funds on a whim.

Merchants have two implementation options. The simplest option involves placing a PayPal button on your checkout page through an HTML snippet. This button brings customers to the PayPal site to make payments in a hosted option that takes less than an hour to implement. Catalogers seeking a more integrated solution can opt for PayPal’s application programming interface (API)-based solution, which keeps customers on the merchant’s site and allows it to prepopulate address and payment information from PayPal data.

PayPal transaction fees range from 1.9 percent to 2.9 percent, plus $0.30 per transaction, with no additional setup or gateway fees.

Bill Me Later: Direct Credit

Unlike PayPal and Google Checkout, Bill Me Later is a direct credit product: It’s “secure, instant credit at point of sale,” Talbert says. Two million customers and 300 merchants are using the system.

When customers select Bill Me Later at checkout, they’re asked for their birthday and the last four digits of their Social Security number. Bill Me Later then approves or disapproves the transaction in three seconds. If approved, the transaction processes like a conventional credit card through the payment processing system, and merchants get paid the next day, à la MasterCard or Visa. Customers don’t need a credit card to finish the purchase. Bill Me Later takes full credit risk, paying retailers even if customers default.

Implementation requires modifying your shopping cart to call the Bill Me Later API. Talbert says that for marketers writing their own cart application, this
typically takes 75 to 100 developer hours over three calendar weeks. Several off-the-shelf commerce platforms have Bill Me Later functionality built in, he points out. Bill Me Later transaction fees range from 1.5 percent to 1.85 percent, plus $0.15 per transaction.

Newcomer: Google Checkout

Launched in June, Google Checkout is an online wallet designed to store shipping and credit card information to save customers time during checkout. (Google declined to provide how many consumers have signed up for the product so far.)

Like PayPal, customers need to have a Google Checkout account before using it, although the process seamlessly allows new customers to set up such an account on the fly. Google Checkout then allows customers to automatically login to purchase, auto-populating address and credit card information.

Not a payment method per se, it’s a wallet and a payment wrapper. Google processes the charge, keeping the full credit card number and the true customer e-mail shielded from the merchant.

Google offers three implementation levels, from a simple HTML snippet to full API integration. Ling says API integration takes a few days of programmer effort.

Google charges 2 percent plus $0.20 for each transaction, regardless of which underlying card consumers opt for.

I noticed two powerful and interesting twists to Google Checkout: free card processing and better ad placement. If the merchant advertises using AdWords, Google’s pay-per-click service, Google provides processing for $10 worth of sales for every $1 spent on AdWords. For many merchants, this effectively makes processing free.

Google displays a shopping cart icon next to Google Checkout advertisers. Ling notes that participation in Checkout can increase clickthrough rates, which ups the quality score, giving advertisers higher paid positions on Google search results pages at a lower cost.

How to Choose

For online merchants with significant AdWords programs, the benefit of the shopping card badge on the search results page is a strong incentive for adding Google Checkout. Online merchants with high average order values will find the instant credit and delayed payment options of Bill Me Later quite attractive to their customers. And retailers with a strong eBay presence will appreciate the large base of PayPal users.

Integrating any new payment type takes programming effort. Often, it’s more efficient to add several payment types to the cart as part of one project. If this is the case, retailers should consider adding all three, as these different alternative payment approaches serve different customer needs.

Alan Rimm-Kaufman leads the Rimm-Kaufman Group, an online search marketing agency. Contact him via his Web site, www.rimmkaufman.com.