The OL effect – an easy way to improve sales that you’re probably not doing

This is such an important validation of the effectiveness of social merchandising that, if we’d thought of it, we would have commissioned a market research firm to write this study for us.  But, even better, it’s actually a peer-reviewed article produced by a team of university marketing professors and published in the journal of the American Marketing Association, the Journal of Marketing Research.  It’s titled: Online Social Interactions: A Natural Experiment on Word of Mouth Versus Observational Learning.  (There’s also a nice write-up and interview with the lead author on Red Orbit.)

The findings are straight-forward: Online, as in the physical world, people are more likely to buy things that they see other people bought.  There’s no word of mouth here.  This isn’t about customer ratings and reviews.  This is just about seeing the purchases of other people.  The merchandising lessons are simple:

1. You can improve conversion rates by showing shoppers that other people have really bought a product (on the product detail page)
2. You can encourage consideration by showing the purchases other shoppers made (in your product discovery/recommendation/cross-sell merchandising)

The study looked at a period when Amazon put up and took down the “what other people bought” section on their digital camera products to see what effect having/not having this information had on sales.  Using these data,

The authors observe a herd behavior among consumers when the OL or sales information is positive, but surprisingly, they observe no herd behavior when consumers face negative OL or sales information.  [OL stands for “Observational Learning”, which in this case means “seeing what other people bought”.]

In other words: when shoppers saw that other people were buying a particular item, they became more likely to buy it.  But if an item didn’t have peer-purchase information, that absence didn’t hurt sales.  So you don’t need sales coverage for your whole catalog – show purchase information where you’ve got it, and don’t worry about it where you don’t.

Here are a couple examples of stores using tools that deliver the OL effect.  For lesson #1 (on the product detail page, showing shoppers that other customers are also buying the item), have a look at the 98 check-out comments on these shoes at GoJane (scroll past the Q&A).  For lesson #2 (showing products that other customers are buying to encourage consideration and cross-sell), have a look at the “See what your friends bought” tab on the right edge of the window here at emitations.  What effect do these tools have on you?  Does this sort of merchandising make you feel like buying?

If you want to take advantage of the OL effect to improve your sales, give us call.