No prisoners: e-Commerce Uses Game Theory to Capture Consumer Share of Wallet thanks to Nash Equilibrium

It is that time of year again. Christmas shopping must be done and deals are flying in all consumers inboxes. Whilst reading ‘The Bargaining Problem‘ by one of my favourite Mathematician/economist, it got me thinking how we use the Game Theory on a regular basis in eCommerce reflecting on my Christmas shopping behaviour (both as a consumer and retailer). Indeed, the rise and rapid proliferation of technology has forced companies to adapt in order to stay relevant and competitive. Specifically, the consumer retail industry has recently navigated this changing landscape by utilising collected consumer data to make prices dynamic depending on seasonal factors, locations (international businesses) and even the strategies of their competitors. These companies are trying to harness the power of technology to achieve perfect price discrimination, where the seller knows every buyer’s willingness to pay and can therefore maximise retail prices without exceeding the buyer’s walk away price.

John Nash and the Equilibrium Point

John Forbes Nash Jr. (June 13, 1928 – May 23, 2015) was an American mathematician who made fundamental contributions to game theory, differential geometry, and the study of partial differential equations. Nash’s work has provided insight into the factors that govern chance and decision-making inside complex systems found in everyday life.

His theories are widely used in economics. Serving as a Senior Research Mathematician at Princeton University during the latter part of his life, he shared the 1994 Nobel Memorial Prize in Economic Sciences with game theorists Reinhard Selten and John Harsanyi. In 2015, he also shared the Abel Prize with Louis Nirenberg for his work on nonlinear partial differential equations.

John Nash is the only person to be awarded both the Nobel Memorial Prize in Economic Sciences and the Abel Prize.

Game theorists use the Nash equilibrium concept to analyse the outcome of the strategic interaction of several decision makers. In other words, it provides a way of predicting what will happen if several people or several institutions are making decisions at the same time, and if the outcome depends on the decisions of the others. The simple insight underlying John Nash’s idea is that one cannot predict the result of the choices of multiple decision makers if one analyses those decisions in isolation. Instead, one must ask what each player would do, taking into account the decision-making of the others.

 

Game theory applied to eCommerce

In the context of e-Commerce, the retailer and the consumer are the two players. A game theory graph would illustrate the company’s best response to the consumer’s willingness to pay and the consumer’s response to the retail price the company is offering for the product. There would be no dominant strategy in this game because of the availability of information about other sellers and the access to other sellers the customer has in addition to the connectivity to millions of buyers via the Internet the company has. Either party can forego engaging in this transaction and just find another customer/company to sell/buy to/from. This can be illustrated with the given example (I read couple of articles whilst researching) of how Amazon dropped prices on Black Friday of a Samsung TV from $350 to $250 and decided on this final price using collected data, which allowed them to surpass the competition. Amazon took this a step further by hiking the price of HDMI cables, a complementary product, knowing based on consumer data that people are less likely to shop around in pursuit of the lowest prices for smaller items than bigger ticket items. The customers’ willingness to pay was any price lower than what the competitors were offering, which turned out to be the $250 (implying that no other retailer offered prices that low).

The implications of this show how companies are controlling not only prices but consumers’ perception of prices, thereby using this data to surpass the competition by limiting how consumers perceive the choices they have in front of them. Furthermore, this serves as an illustration of another way we experience a loss of control in our lives. However, another side of the argument says that perfect price discrimination can positively impact consumers, since their prices will be individually tailored. At the same time, this constant changing of prices can end up overwhelming and deterring consumers from purchasing the item all together.

As of now, it is too soon to tell how and if this becomes a normalised practice that we all must adapt to. It definitely is interesting to consider the ripple effects it will have on consumer behaviour in the future in addition to potential consumer protection regulation, as we are operating within a rigged sandbox where companies hold all the cards in their favour through informational advantages.

Recommended reading: http://file.scirp.org/pdf/IB_2014122310482155.pdf

Happy Christmas Shopping and bargain hunting

Benoit Mercier

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Speed is everything

When you launch a website, there are many factors that must be optimised, like checkout, but speed is the one you should really focus on. At the end of the day, if your website is optimised on all key conversion pages but your website is slow then it is wasted effort, believe me. Can the speed of your website really have that much of an effect on your conversion rate? Even if your site isn’t loading too slowly, can it still be improved?

According to surveys done by Akamai and Gomez.com, nearly half of web users expect a site to load in 2 seconds or less, and they tend to abandon a site that isn’t loaded within 3 seconds. 79% of web shoppers who have trouble with web site performance say they won’t return to the site to buy again and around 44% of them would tell a friend if they had a poor experience shopping online.

This means you’re not just losing conversions from visitors currently on your site, but that loss is magnified to their friends and colleagues as well. The end result –lots of potential sales down the drain because of a few seconds difference.

How fast should be my website?

This is a question I get asked a lot. I have naively always thrived for the magical number of 2s but let me put it out there: ‘Not possible’! I know the stats and the graphs but for a retailer this number is fantasy. So what should it be?

Well in my opinion, you should do two things. Firstly, make sure that you are faster than your previous year. if you build a new website, it is not to be slower. There is nothing wrong to compare YoY. However, remember that it might not be LFL because you have changed the amount of content on a specific web page (i.e. larger images on your product detail page). Secondly, you should benchmark your key competitors. At the end of the day if you are faster than them then you can gain a competitive advantage.

Speed and google

Let me clear this one out. A slow website doesn’t currently harm your organic ranking. Will it change? The speed of your mobile pages currently doesn’t impact your mobile rankings, but soon it may, says Gary Illyes of Google. Read this article.

What tools to use?

There are plenty out there. For me, the best free ones are webtestpage and GA. I use them on a weekly basis and find them incredibly rich in insight. I know a lot of web developers use Lighthouse but for me it is rubbish. You can run the same tests 10 times in a row and you get huge variations.

Also, if you can afford it, find an excellent monitoring partner. I use NCC and they are fantastic. This is their area of expertise and they have some excellent tools. One that I am currently testing is their RUM tool that can predict how much cash you are loosing or potentially could gain if you were going to increase speed.

How to measure speed?

Speed Index. Yes you need to monitor your speed index on a monthly basis if not weekly if you have just replatformed. Read more.

There are all the KPIs you must look at:

  • First BYTE – The First Byte time is the time from when the user started navigating to the page until the first bit of the server response arrived.  The bulk of this time is usually referred to the “back-end time” and is the amount of time the server spent building the page for the user.
  • Render start – The Start Render time is the first point in time that something was displayed to the screen.  Before this point in time the user was staring at a blank page.  This does not necessarily mean the user saw the page content, it could just be something as simple as a background color but it is the first indication of something happening for the user.
  • DOM load – DOM ready means that all the HTML has been received and parsed by the browser into the DOM tree which can now be manipulated. It occurs before the page has been fully rendered (as external resources may have not yet fully downloaded – including images, CSS, JavaScript and any other linked resources)
  • Visually complete – Visually Complete measures how long it takes to display the content visible in the user’s browser: content “below the fold” and non-visual content (like third-party tracking beacons) is excluded.
  • Fully loaded – The metrics grouped together under the Fully Loaded heading are the metrics collected up until there was 2 seconds of no network activity after Document Complete.  This will usually include any activity that is triggered by javascript after the main page loads
  • Page weight – this is how heavy your page is with all the content

and then leave all other metrics to your web developers. Optimise all of the KPIs above and your CR will start to improve. How much will CR improve depends on how bad your website is.

Also remember to tests in different environments. For example, how fast is your website in a slow 3G environment vs. a 5mbps WIFI? Also adjust latency.

Conclusion

Ignore website speed at your own peril as the CR gains are potentially huge. You haven’t got time then appoint a partner. If you have invested in a Ferrari but it is as fast as a Skoda then you are burning cash away! Monitoring takes no more than an hour when you select key pages (i.e. homepage, category landing page, product detail page) and will give you a great set of focus with your web developers. Good luck.

Benoit Mercier

GDPR explained and should we love or loath it?

gdpr

In the past few months, the amount of literature on GDPR has been increasing rapidly. Discussing the topic internally or externally, people do not know whether it is good or bad for business, nor do they understand the ramifications of these changes. Here is my point of view. Forget whether it is good or not for your business, the bottom line is that it is good for the customers. If you are a customer centric business like mine then you will welcome it with open arms. Of course, there will be painful conversations ahead, and people must remain pragmatic and make these changes bit by bit rather than all at once. Therefore if you read this post, crack on with it as it will come into play on the 25th May 2018.

Background

Back in the day, around 1995, the Data Protection Directive 95/46/EC [DPD] was introduced. This legislation was the first of its kind at the time and it replaced some old school legislation that was out of date and allowed for all the new data legislation to be in one place. The legislation provided a detailed framework for data processing but now, 21 years later, the DPA has become significantly out of date!

Now, 21 years is a long time and you can do 7 undergraduate degrees within that time. So it is no wonder that within that period, the use of computers and the data this use creates has changed considerably, which, unfortunately, also means that the threat of cyber crime and subsequent data misuse has also increased.

Not only has technology changed immensely (and continues to do so), but the reliance on paper records has diminished. Funnily enough, floppy disks are no longer used (remember those!) and there are now a vast amount of storage options, as well as the mass use of social and professional media and the ongoing creation of Big Data, resulting in huge chasms in the 1995 legislation.

Some users have become somewhat paranoid and alert to the dangers of the growing risks and importance of data protection, being the savvy lot that they can be, however, the majority of everyday users (business or social) are still catching up to basic security measures.

A survey undertaken by the EU revealed that 74% of Europeans see disclosing personal information as an increasing part of modern life. But why are people giving away their personal information?

It seems that the most important reason to disclose this information is to access an online service. The most interesting result in this survey is the fact that 26% of social network users and 18% of online shoppers felt out of control of their own data.

What does the General Data Protection Regulation (GDPR) cover?

The legislation named the General Data Protection Regulation or GDPR, includes options such as the ‘right to be forgotten’, new rules on data transfers outside the EU, the implementation of data breach notification requirements and the introduction of much higher fines that are based on the percentage of a company’s annual turnover.

The ICO (Information Commissioner’s Office) explains that under the GDPR, the data protection principles set out the main responsibilities for organisations.

Click here for full access to the ICO website.

The principles are similar to those in the DPA, with added detail at certain points and a new accountability requirement. The most significant addition is the accountability principle. The GDPR requires you to show how you comply with the principles – for example by documenting the decisions you take about a processing activity.

Key principles of GDPR:

 

Coverage Scope

The GDPR covers all data controllers and data subjects based in the EU. It also applies to organizations based outside the EU that process the personal data of its residents.

According to the EC, the definition of personal data covers anything that points to their professional or personal life, including names, photos, emails IDs, bank details, social networking posts, medical information, or computer IP address.

There will be a Single Data Protection Authority (DPA) assigned to each company depending on where the company is located who will report to the European Data Protection Board. They must be appointed for all public authorities and companies processing more than 5000 data subjects within 12 months.

Accountability

Although previous data processing notice requirements remain intact, they must also specify the retention time for personal data and provide their contact information to customers. The Privacy by Design and Privacy by Default clauses in Article 23 mandate that data protection protocols must be integrated into the business development process itself. All privacy settings must be set to high by default.

Data Protection Impact Assessments (Article 33) have to be conducted when specific risks occur to the rights and freedoms of data subjects.

Proof of Consent

Article 7 and Article 8 specify that data controllers must possess a valid proof of consent for processing data and acquire special permissions for collecting the data of children under 13 from their legal guardians.

Instant Breach Alerts

Article 32 says that any case of data breach must be reported to the DPA by the controller within 72 hours of discovering the issue so that all parties involved can be warned about the situation and take precautionary measures.

Severe Sanctions

Instances of first unintentional cases of non-compliance will be doled out written warnings by the DPA. As a result, organisations will also be directed to conduct regular data protection audits. In case of graver offences, organisations may have to cough up a deadly fine up to 1,000,000 EUR or up to 2% of the annual worldwide turnover in case of an enterprise, whichever is greater (Article 79).

Right to Erasure

Article 17 empowers data subjects by giving them the right to request removal of personal data related to them on any one of a number of grounds, including cases where the fundamental rights of the data subject take precedence over the data controller’s interests and require protection.

Portability of Data

According to Article 15, users will also be allowed to request a copy of personal data being processed so that they have the freedom to transmit it to another processing system if needed.

On-premise private cloud solutions such as FileCloud help organisations to keep their data in servers within their firewall, while providing all the flexibility and access advantages of public cloud such as Dropbox. Additionally, FileCloud’s unique capabilities to comply with EU regulations, and features to monitor, prevent, and fix any data leakage across devices (Laptops, Desktops, Smartphones and Tablets).

What should you do if you want to transfer data now?

It has been advised that in this pre-GDPR time, that it is better to just avoid transferring data altogether, even though alternatives have been set out by the EU. A number of solutions have been made available to help with the problem of transfer, such as mobile e-discovery technology, predictive coding technology or e-discovery platforms and predictive coding, which can be used to ensure that relevant data is found quickly and deleted.

Transferring data across the pond looks to remain a complex legal process until the GDPR and Privacy Shield are fully confirmed and in place.

However, the legislations are not concrete and may still change, even after going live. Even more so in the light of Brexit, how will the UK adhere to the GDPR and its new shiny facets? Most people say that it won’t change but let’s wait for the Great Repeal Bill.

With the vast amount of alternatives that are available, it should not be difficult to find solutions to processing essential data during this time of uncertainty and it will hopefully be a progression for all internet/data/app users feeling secure that their data is secure!

Should you love it or loath it?

Love it, of course. As Anders Hilmansson puts it, there is quite a lot in it for you! If you comply with the GDPR adequately and effectively, you’ll have the possibility to achieve breakout performance compared to your competitors, owing to you having a competitive advantage. You’ll have what the Boston Consulting Group calls the “Trust Advantage” (MUST READ this paper): meaning that your consumers will entrust you with more data (compared to your competitors), which will lead to better online recommendations, more accurate targeting, faster development of new products and services, and several other benefits to you and your customers.

In light of the above – and taking into consideration that the value of Europe’s personal data is estimated to grow to nearly 1 trillion euros annually by 2020 – the GDPR isn’t a burden: it means business. (Even if most people currently preaching about the GDPR are keeping this a secret.)

Hope that clarifies it and helps put a bit of perspective

Benoit Mercier

Google begins mobile-first indexing, using mobile content for all search rankings

Google has begun testing its mobile-first index, which will primarily look at the mobile version of your website for its ranking signals and fall back on the desktop version when there is no mobile version.

Businesses that have made the move to have their platform responsive will be delighted to read the below. If you haven’t then you need to ask yourself whether you should 1) go responsive or 2) recruit more people to ensure that all your content is available on your mobile site.

Most of Google searches are mobile, but Google’s index is desktop

Google explained that it sees more mobile searches than desktop searches on a daily basis. But when Google looks to evaluate a page’s ranking in Google, it currently looks at the desktop version of the site — an issue we pointed out over a year ago. To fix this, Google will look at the content, links and structured data of the mobile version of your site if one is available.

Google wrote:

To make our results more useful, we’ve begun experiments to make our index mobile-first. Although our search index will continue to be a single index of websites and apps, our algorithms will eventually primarily use the mobile version of a site’s content to rank pages from that site, to understand structured data, and to show snippets from those pages in our results. Of course, while our index will be built from mobile documents, we’re going to continue to build a great search experience for all users, whether they come from mobile or desktop devices.

With this change, Google will primarily index mobile content and use that to decide how to rank its results, regardless of whether you’re on desktop or mobile. There will no longer be any type of “mobile-friendly” adjustment done just for mobile users. Effectively, if you’re not mobile-friendly, that will have an impact even on how you appear for desktop searchers

Google is testing this but hopes to roll it out to all

Google said it has started this experiment and will “continue to carefully experiment over the coming months on a small scale.” Google will “ramp up this change when we’re confident that we have a great user experience.”

No mobile site? Don’t worry

Those who do not have a mobile version of their website do not need to worry. Google will just use the desktop version to rank the site. Google wrote, “[I]f you only have a desktop site, we’ll continue to index your desktop site just fine, even if we’re using a mobile user agent to view your site.” This also means that if you have a responsive site, one that dynamically changes content depending on desktop or mobile device, there’s nothing special you need to do.

Of course, if you do not have a mobile site, you won’t benefit from the mobile-friendly ranking boost. But that is separate from this mobile index news.

How can you prepare?

Here are some recommendations Google is giving webmasters to prepare for the change:

  • If you have a responsive site or a dynamic serving site where the primary content and markup is equivalent across mobile and desktop, you shouldn’t have to change anything.
  • If you have a site configuration where the primary content and markup is different across mobile and desktop, you should consider making some changes to your site.
      • Make sure to serve structured markup for both the desktop and mobile version. Sites can verify the equivalence of their structured markup across desktop and mobile by typing the URLs of both versions into the Structured Data Testing Tool and comparing the output.
      • When adding structured data to a mobile site, avoid adding large amounts of markup that isn’t relevant to the specific information content of each document.
      • Use the robots.txt testing tool to verify that your mobile version is accessible to Googlebot.
      • Sites do not have to make changes to their canonical links; we’ll continue to use these links as guides to serve the appropriate results to a user searching on desktop or mobile.
  • If you are a site owner who has only verified your desktop site in Search Console, please add and verify your mobile version.

Good luck

Benoit Mercier

State of UK shipping in 2016

I have been doing some research on the state of shipping in the UK as I believe that it is a critical success factor to any online business across the world to be successful. Of course, the products you sell are key, but as you will encounter a lot of competition you will need to differentiate yourselves, and matching your customers’ expectation in terms of delivery will be key to your growth.

I have been studying 27 key UK retailers and created a model to evaluate their delivery proposition. To my suprise, House of Fraser came on top just above Amazon. But then upon reflexion, it is not that surprising. HOF have got a huge network of shops, which Amazon haven’t got, as well as, offering additional click and collect networks (Doodle, Collect+, etc). This is where I believe multichannel have the edge on pure players. Make no mistake, Amazon have recognised this strength and expanding their click and collect partnerships (latest in date is Morrisons).

Temando published a very intersting research. Here are some nuggets and interesting insights:

  • 60% of consumers abandon their shopping bag because delivery costs are too high
  • 42% of consumers abandon their shopping bag because delivery information come too late in the journey
  • 37% of consumers abandon their shopping bag because free shipping wasn’t offered
  • 27% of consumers abandon their shopping bag because shipping was too slow

Costs are always an issue but speed is a growing requirement. Over a quarter of respondents mentioned that they expect a fast and reliable delivery service. This is where Amazon have the edge. Always trying to innovate (1 hour delivery, drone delivery). Go back to your supplier and negotiate for a faster service.

Interestingly, on average 40% of retailers charge the customers the exact amount it cost them and only 2% of average make some extra margins. I actually know that some retailers will make a loss in order to optimise their conversion rate. However, 30% of retailers are concerned by the constant increase in prices from the couriers.

Another fact that is becoming key is that 78% of consumers expect their delivery to be made on the same day. Based on my research only 20% of retailers offered that service. That sounds like an opportunity!

Other important facts:

  • 86% of consumers would use time slots.
  • 88% expect a click and collect service
  • 64% expect to collect from other networks collect points
  • 84% expect express delivery
  • 71% expect weekend delivery

Now, what are the drawbacks of not offering a compelling delivery proposition?

  • Reduced customer loyalty (39%)
  • Negative brand impact (36%)
  • Increased costs of returns (31%)
  • Increased calls to call centre (22%)
  • Increased negative social media mentions (21%)

Finally, 42% of consumers would be ready to receive a drone delivery! I can’t wait for that first experience but the air space may be crammed 🙂

In summary, 2 actions you should get on with rapidly:

  1. review your delivery proposition and the ones of your competitors to ensure you are at least competitive and if possible gain a competitive advantage
  2. discuss your costs and available services with your carier

Good luck and if you need help contact me

Benoit Mercier

Google AMP the future

What is Google AMP?

The Google AMP Project is a way of fast-tracking content to mobile devices. It improves upon the traditional model of serving mobile content because it relies on a specific form of HTML, called AMP HTML, to strip down the presentation of content. Mobile’s mix is ever increasing and delivering the right experience at high speed is key to success

Why is Google AMP important for SEO?

As Google often preaches to the industry, page speed and mobile-readiness are high-quality ranking distinctions that determine the placement of a site’s content link in the search engine results pages (SERPs). The faster a site is (among other ranking signals), and the more it caters to mobile devices, the more likely it is to be seen and clicked on by Google search users.

Since 2013, Google has been evolving from being the company that provides links to other sites in search results to the company that provides answers to questions in search results.

There is an excellent article on how ot works

https://moz.com/blog/how-googles-amp-will-influence-your-online-marketing

Happy reading

Benoit Mercier

Check your returns policy

An interesting research this am about returns

17 stores ‘misled online shoppers about legal rights’. The Metro reports that a study by MoneySavingExpert.com has found that 17 retailers were misleading shoppers about their online returns policies. The retailers either “hid” the correct policy or were displaying a policy which did not comply with the law, which was changed 20 months ago to allow consumers 28 days to cancel and return an order. 13 of the retailers highlighted in the report – including JD Sports, New Look and Next – have said they will review their policies or make changes to their online stores. The other four have been reported by MoneySavingExpert.com to trading standards.

Benoit Mercier