Marketing 'detachment' can be just as rough on e-commerce as digital fraud

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The switch to EMV was designed to reduce fraud, but experts are predicting that in the short term the new system will actually cause fraud to spike.

It's easy to focus on the risk to e-commerce from EMV, which may cost as much as $10 billion between 2016 and 2020, according to a recent study from Aite Group.

But that's just part of the risk story. The detachment from their customer base, which goes hand in hand with online businesses, can cause real problems if sales, marketing and customer service are managed inefficiently.

Here are the major threats affecting online merchants and how they can protect themselves.

Not knowing your traffic provider. In the saturated online marketplace, it is becoming increasingly difficult to attract the right customers. For online retailers that don’t have the time or expertise to roll out effective marketing campaigns on social media platforms, more hands-off tactics include paying traffic providers and affiliate marketer networks to do the hard work.

According to the marketing firm Custora, affiliate marketing now drives as many e-commerce purchases in the US as email, and leading traffic providers offer hundreds if not thousands of "free" leads before you need to pay. When done right, affiliate marketing can be a lucrative tactic to boost sales, and according to a recent Rakuten/Forrester Report is set to balloon into a $6.8 billion industry within the next five years.

However, as highlighted in a recent VentureBeat article, The Big, Ugly Affiliate Marketing Scam, for every legitimate affiliate network there is an army of scammer partners waiting to try to trick electronic retailers with fake traffic and false results. Using bots, and click farms, unscrupulous "partners" or traffic providers can make traffic spike to paying e-retail partner sites, but without actually motivating many new sales.

With other marketing tactics, brands can target the exact demographics who tend to buy their products. Unfortunately, when untrustworthy traffic providers or affiliate networks direct traffic, far too often they direct any traffic, regardless of whether the new consumers are likely to buy the products on offer or not.

Pushing the wrong consumers toward online stores, not only reduces the chance of legitimate sales, but also increases the chance of sales followed by chargebacks or refunds post payment. Merchants were estimated to have been hit with $5.8 billion in chargebacks in 2016 and to add salt to the wound, are forced to pay a fee to credit card carriers on top of the returned balance.

When analyzing chargeback cases, we’ve seen a direct correlation between bad traffic providers and high levels of chargebacks. To reduce risk, merchants should constantly monitor the analytics of their traffic providers to make sure that the customers they are bringing you are converting into real sales. Take a close look at the refund rate, conversion rate and chargeback rate of all your traffic providers to determine the real ROI, and be sure to stop relationships with providers immediately if high levels of these three metrics are noted.

Not identifying marketing and customer service problems quick enough. In a traditional brick and mortar store, it is easy for staff and managers to gauge customer satisfaction as they are in direct contact with consumers day after day. In the world of online retail, stores and brands need to wait for consumers to contact them via customer service channels, or leave a review on a leading site like Yelp or FourSquare to gauge how pleased or displeased people are with a service.

However, while there are no shortage of negative reviews online, a recent study by Shopify found that 75% of reviews posted on review websites are positive. This poses the risk of online retailers becoming complacent in their service provided, and losing customers, due to a lack of awareness of areas that need improvement.

A lack of negative feedback may also motivate online retailers to devote less resources to customer service than they should, which in turn creates a chargeback danger zone. If customers try to contact a customer service rep via chat, email, social media or phone, and have to wait too long, or don’t receive a prompt reply, they are more likely to make a chargeback request to their credit carrier, rather than waiting to deal with the problem with the vendor themselves.

For this reason, it is extremely important that online retailers are clear and honest in marketing, and that returns, complaints and cancellation policies are clearly shown online. If retailers are not available to address consumer concerns pre- and post-sale, they could see a spike in credit card chargebacks from exasperated customers, along with negative reviews posted online.

The best way to avoid these problems are by ensuring all marketing claims are 100% honest, and clearly describe the real products being sold. All important information a customer could need should be easily found in an FAQ section, and displayed as terms and conditions that need to be agreed to by the client pre-sale.

This is especially important for services that use recurring billing. The FTC offers advice as to how to legally offer consumers the right information pre-sale here.

Not knowing your customers. If you are the owner of a cross-fit store, your target consumers are health-conscious, active men and women between the ages of 16 and 50 who enjoy sports. Using platforms like Facebook, you can effectively target the correct demographic, and invest time and money bringing them on board with targeted adverts, deals and offers that are likely to bring them on as long-term customers.

However, if an online retailer does not use online marketing efficiently, they can lose significant revenue by targeting the wrong customers. This is especially true for retailers that offer goods on a subscription or membership-based model, which tend to offer free trials and free products as a hook to reel in active customers.

Targeting the wrong customers can lead to poor sales and high levels of refunds and chargebacks. Resources that could have been used targeting potentially profitable target consumers are wasted on "dead leads," and companies end up losing money due to refunds and chargeback fees to credit carriers.

Analytics will play a major role in determining the right customers for your business. Determine your customer retention rate, churn rate, void rate, refund rate and chargeback rate by traffic source and identify the markets that yields at least 65% average customer retention rate. Based on our data, e-commerce businesses with a minimum retention rate of 65% on their subscription billing model seem to be profitable.

With such high levels of competition from global giants like Amazon and Alibaba and millions of independent retailers, coupled with the omnipresent risk of being burned by credit card fraudsters and the consequent chargeback fees, it is more important than ever that online retailers tick all the boxes to reduce risk and maintain the highest levels of customer service possible. It is far too easy to take shortcuts to boost sales and save money, but in doing so retailers risk losing consumer trust, being bogged down by fake leads and seeing chargebacks shoot through the roof.