How to Measure the Effectiveness of a Product Recommendation?

How do we determine the effectiveness of online stores?

The key to success of an online store is to enable customers to discover products and make purchasing decisions and then learn from their experiences. The effectiveness of these activities can be seen in increased sales and traffic on the site. Still, these phenomena are difficult to measure and analyze. What comes in handy are the coefficients that numerically show the sales dynamics of the store. By tracking indicators such as CTR (click-through rate), CPA (cost per acquisition) or KPIs (key performance indicators), you can monitor changes and the effectiveness of marketing campaigns and sales support tools. The common denominator of all these statistics is conversions. This is the reason why ongoing monitoring of conversion rates is so important.

Why are conversion rates so vital?

Increasing the conversion rates is related to 4 key aspects:

1. Revenue - Increasing your conversion rates is the most cost effective way to increase your average revenue. Instead of spending the marketing budget on advertising (which lowers the quality of traffic), improving CRO (conversion rate optimization) by customizing your webpage, adding product recommendations, and facilitating page navigation is the most reliable way to boost sales.
2. Value - Increasing your conversion rates translates into increasing your page value. For store owners, paying attention to user experience (UX), improving navigation, and adding original content to a website or running a blog is extremely important. All of these activities indirectly increase the value of products and the theoretical value of the entire website.
3. Remarketing - Most people professionally dealing with marketing will say that the best customer is someone who has already bought something on our website. Finding a way to turn the clicks of unsure visitors browsing the website into customers (and then applying remarketing tactics) is more effective than spending a lot of money on marketing to random users.
4. Personalization - It is currently one of the key elements of enhancing the visual presentation of the store and user experience (UX). By presenting your customers with content prepared "especially for them", you can significantly improve user engagement, which will result into increased sales.

How can recommendation engines improve online store conversions?

Recommendation systems play an important role in improving online store conversions. First of all, they are an important element of personalization for the store. Thanks to them, each website user will be offered products based on both his browsing history as well as the purchasing habits of other customers. According to the Barillance study, users who clicked on the recommended products generated as much as 5 times more conversions compared to other users.

Because of recommendations the customer is shown the items they are most likely looking for and interested in, so they does not need to spend valuable time filtering multiple options and categories. This significantly improves the speed of navigation around the store and increases the likelihood of a purchase by a given user.

It is worth adding those recommendation systems - such as Recostream - collect statistical data on customer behavior and their interactions with proposed customers on an ongoing basis. It is possible because of cookies which collect information about the behavior of all customers on the website, excluding their personal data, which we wrote about in the previous post. This allows you to accurately calculate conversion rates for recommended products and determine the effectiveness of the tool. All this data is collected in a simple and intuitive dashboard that offers store owners problem-free access to current statistics.

Summary

Conversion rates are a direct indicator of how well an online store is managing in the market and whether it is profitable. For owners of eCommerce websites who want to develop their business, trying to maintain these ratios as high as possible should be an absolute priority. They may find product recommendation systems helpful. Thanks to such personalization of the store, both customer engagement and the average value of the basket will increase. Taking into account the statistical data collected by these systems, store managers have easy access to all kinds of conversion rates. Thanks to them, they can monitor the operation of the system on an ongoing basis and constantly adapt it to optimize their store and increase revenues.