Building the Business Case for a Mobile Commerce App

Posted by David Kovacs on Aug 26, 2014 7:00:00 AM

David

Written by David Kovacs
VP of Business Development, 
GPShopper

 

The consumer shift to mobile over the past two years has been astonishing, and as with most industries, retailers are in the process of defining their mobile strategy. According to Internet Retailer, nearly 40% of eCommerce is coming from mobile devices, and 42% of that is from apps. Setting the right strategy and executing effectively is of critical importance to the business.

Beacons_Personalization

Mobile Marketing Challenges
A mobile optimized website is table stakes in today’s world. In addition to web, a comprehensive mobile strategy must include an app as well. While many retailers have invested in building best-in-class apps and are reaping the rewards, others are having difficulty building the internal business case for building an app. There are typically several reasons for this:

  • There are few, if any, well-documented case studies on the ROI of a mobile app.
  • Investments in mobile web have resulted in significantly lower conversion rates than desktop. Many retailers are skeptical of allocating more budget to an additional mobile solution.
  • The retailer built an app 3+ years ago - likely a wrapper or hybrid app - with the sole interest in getting that app to market fast, and it performed poorly.

When executed properly, a native mobile app delivers positive return on investment within the first year of its launch. This post will explain the sources of the ROI with the objective of helping eCommerce, Digital, Mobile and Marketing teams build a business case for investing in the addition of a mobile app.

Download GPShopper's Mobile App ROI Caculator to determine the ROI you can expect based on your own data and revenue, or read on for model assumptions.

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Your Mobile App Audience
While your mobile website is for everyone, your mobile app should be built for your most loyal (and profitable) customers. Based on the apps that GPShopper has in market, a retailer should expect that a fully-functional, well-marketed mobile app will draw the top 10% of your customer base and account for 20% of all mobile traffic.

It is critical to note is that this 10% of your customer base likely represents 30%, 40% or even 50%+ of your revenues. Your most dedicated customers want you to offer the convenient experience that only a mobile app provides, and you should strongly consider building one to maintain their loyalty. 

Sources of Mobile App ROI
Once anticipated app traffic is established, the ROI benefits are driven by 4 primary sources:

  1. Increased Average Order Value (AOV): GPShopper clients experience mobile app AOV to be anywhere from 20% - 50% greater than mobile web. This is driven by the ease of the browsing experience, and the ability to segment customers and upsell based on profiles of registered app users.
  2. Higher Conversion Rate: Desktop conversion rates are typically 3x - 5x that of mobile web, and the conversion rates of mobile apps now approach that of desktop. The primary driver for this is the ability to persist app login, thus streamlining the checkout process. Most mobile web users abandon cart due to friction in the checkout process. Apps solve this problem through registration.
  3. Impact of Push Notifications: GPShopper clients see an increase in traffic of 150% - 300% on the day of a push notification and a 20% - 50% increase in conversions (provided that the push is product-related). This is huge, and only possible if the customer has an app.
  4. In-Store and Brand Benefits: Multiple studies have shown that app users spend more in-store than non-app users (25% more in the case of GPShopper client Best Buy). Additionally, there is an impact on brand perception and preference, as 67% of consumers are more likely to shop from a retailer that has an app.

While some of the benefits detailed above are due to self-selection bias (they are your best customers after all), this only accounts for a portion of a mobile app’s benefits. The improvement in the overall browsing experience, the ability to persist login and remove friction at checkout, and push notifications all have incremental benefits and will greatly increase the annual spend of your best customers.

As a retailer, having an app on your customer’s phone means that you are top-of-mind and in their pocket every moment of every day. And if you’re not, one of your competitors will be.

Putting it all together
Final_ROI_ImageUsing the assumptions above, let’s model a mid-size retailer that has 250-300 stores, an eCommerce site that gets 2MM visits per month, and a mobile website already in place. This retailer’s current desktop eCommerce conversion rate is 3%, mobile web conversion is 1%, and average order value is $80. Let’s also assume that roughly 50% of eCommerce traffic comes from mobile devices.

What we would expect to see once an app has launched and promoted is the following:

  • App gets 160K visits and generates $410K in revenue per month
  • Annually the platform generates $4.9M in revenues, accounting for 38% of mCommerce revenues
  • Conversion rate on app is at least 2.1% (accounts for $800K incremental rev)
  • Average order value is at least $108 (accounts for $370K incremental rev)
  • Push messaging accounts for over $1MM in incremental revenues

In total, having an app will generate $2.2MM in incremental revenue. And these are just the hard in-app benefits. The in-store and brand benefits would account for minimally an additional $1.4MM in incremental revenues annually. Most studies would put this number significantly higher when taking into account all categories that are considered “mobile influenced.”

These results are highly achievable and do not require building a highly innovative app but rather one that executes well on basic functionality, such as fast load time, store locator and an excellent browse, cart, and checkout process. Simple social media integrations, in-app promotions and contests will give your dedicated brand fans and the mobile experience they seek, while increasing your bottom line.   

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Topics: Beacons, Mobile Marketing, Mobile Apps, Push Notifications, Loyalty, Benchmarks & Statistics, Omnichannel Retail

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The only mobile commerce platform offering commerce and loyalty integrations, unlimited push notifications, beacons and mobile payments, backed by a full CMS and multi-channel analytics. 
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