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The Online Shopping Dilemma: Navigating Checkout Complexity
Imagine you are shopping online. You’ve chosen the things that you want to buy but now you have to go through several steps to make the purchase. These steps might include adding items to a cart, proceeding to checkout, entering shipping information, choosing a shipping option, providing payment information, and finally confirming the purchase. Each of them is fairly simple by themselves, but each of these steps adds a tiny bit of difficulty to the buying process, increasing the time and effort required to complete a transaction. This not only slows down the shopping experience but also provides multiple opportunities for customers to abandon their carts, reconsider their purchase, or be deterred by the time investment or any issues they encountered. There must be a better way???
A Nostalgic Trip: The Internet Boom of the '90s
The 90s were a wild time. Grunge became a collective anthem for a generation of disenfranchised teens; iconic TV shows like ‘Friends’ became deeply embedded in the fabric of society as cultural staples, and Dolly the sheep became the first mammal successfully cloned from an adult somatic cell. An orgy of excitement and innovation. Perhaps most notably, we saw the rise and rise of the internet. The commercialization of the tech-megalith that was once an esoteric military network.
Amazon's 1-Click Ordering Revolution
In 1997 a fledgling start-up named Amazon introduced the process of 1-Click ordering. This allowed customers to bypass the multi-step checkout process. With 1-Click, users could register their shipping address and payment method in advance. Then, for future purchases, they could buy products with a single click of a button, with all other information being automatically filled in and the purchase confirmed immediately. This significantly reduced the friction involved in making a purchase, streamlining the process down to a single action.
Consumer behaviour changed forever. To support the monumental success of this introduction we can point to all kinds of metrics:
Increased Conversion Rates
Amazon's 1-Click system led to a substantial increase in conversion rates, primarily by streamlining the purchasing process. Reports have indicated that the introduction of 1-Click ordering may have boosted conversion rates by up to 30% compared to traditional multi-step checkout processes. This improvement is attributed to the reduction in steps required to complete a purchase, which in turn minimizes the likelihood of cart abandonment and leverages the psychology of impulse buying. The average conversion rate for e-commerce websites generally ranges around 2-3%, but with the implementation of 1-Click Checkout, rates often exceed 10% (Markerly).
Enhanced Customer Experience
The 1-Click ordering system epitomizes a seamless and effortless shopping experience, significantly reducing friction and creating a more pleasant (importantly, easier) shopping journey for customers. This streamlined process is especially beneficial for mobile shoppers, who face the challenges of smaller screens and potential distractions. The convenience of 1-Click Checkout fosters repeat purchases and customer loyalty, as returning customers appreciate the ease of use, which reinforces their commitment to Amazon (Markerly).
Competitive Advantage
The simplicity and innovation of Amazon's 1-Click Checkout not only set a high standard for conversion rates but also provided Amazon with a formidable competitive edge. The capability to offer a frictionless shopping experience distinguished Amazon in a crowded marketplace, directly translating into increased revenue. This feature, combined with other strategies, turned One-Click Checkout into a revenue-driving tool for Amazon, underscoring the importance of convenience and speed in the digital shopping experience (Markerly).
Amazon's 1-Click patent, granted in 1999, has generated billions in revenue, underscoring the significant economic impact of this innovation. By making the checkout process virtually frictionless for its existing customers, Amazon not only improved the shopping experience but also significantly increased its conversion rates from those customers. The patent was so valued that Apple licensed the technology in 2000 for iTunes, iPhoto, and the Apple App Store, further testament to its importance in creating a frictionless checkout experience. Despite controversies around patent enforcement, the success of 1-Click illustrates the profound influence of reducing friction in online transactions (Rejoiner).
Importantly, Amazon improved their customer experience. The tiny little inconveniences that had previously intervened in the separation of the consumer from their money, had now been removed. Imagine a gymnast poised at the start of a runway, eyeing the vault table at the end. Before Amazon's introduction of the 1-Click Checkout, this runway was cluttered with books and Lego (tiny friction points). Not insurmountable obstacles but certainly not optimal for a smooth run-up. The gymnast had to navigate these obstacles to complete the run-up and make a vault.
With the introduction of the 1-Click Checkout, Amazon cleared the runway of all these hurdles, smoothing it into a straight, unobstructed path. Now, the gymnast (the consumer) could sprint directly towards the vault (the purchase) without the need to dodge the obstacles. The bottom line here is that less friction = more spending.
Understanding Friction in Behavioral Economics
In general terms, the concept of "friction" in behavioral economics typically refers to anything that makes a process less smooth or more difficult for consumers, often leading to delays or a decrease in the likelihood of completing a desired action or behavior. It seems reasonable to at least partially credit Richard Thaler (co-author of “Nudge: Improving Decisions About Health, Wealth, and Happiness (2008)”) for popularizing the psychological concept of friction, and how subtle changes in choice architecture can significantly influence decision-making.
In the context of consumer behavior and decision-making, friction can come in various forms, such as complicated forms to fill out, too many choices that lead to decision fatigue, or any obstacles that slow down or complicate the purchasing process. Even small amounts of friction can have disproportionately large effects on behavior.
In marketing and user experience design, the reduction of friction is critical. For instance, simplifying the checkout process on an e-commerce site, making forms easier to complete, or providing clear and concise information can all reduce friction and thus increase conversion rates, user satisfaction, and the likelihood of repeat business.
It's also worth noting that friction can sometimes be beneficial. For example, adding a step in a process might be useful if it's designed to ensure that consumers fully consider the implications of their decisions (e.g., confirming a high-value purchase or subscription cancellation). This is known as beneficial friction.
The Double-Edged Sword of Friction: A Parable
As with many things in life, there are a multitude of forces at play here. However, let me try and offer an example of how friction can be leveraged by a merchant or business with a simple parable:
Imagine a character, call him Steve, enticed by the promise of instant gratification, purchases some magic seeds from a mysterious merchant. These seeds, the merchant claims, can grow into a tree bearing endless fruit overnight. Blinded by the prospect of unlimited rewards, the character buys the seeds without hesitation. However, the magic comes with a hidden cost — the tree grows, but its roots start to destroy Steve’s home, and the fruit, although abundant, brings marginal satisfaction.
The process to remove the tree is long and difficult, requiring Steve to seek out the merchant again, and perform a seemingly endless sequence of really difficult tasks. Steve ultimately learn the lesson that the allure of quick gains often comes with unforeseen complications and that true satisfaction requires more than just the fulfilment of immediate desires.
Now instead imagine that, after having realised the problematic nature of the tree Steve goes back to the merchant to find out what needs to be done to remove the tree. It becomes apparent that there although removing the tree will in fact remedy the situation, it will come at an immense cost in terms of time and effort. Steve is now presented with an uncomfortable proposition: pay a big cost upfront to remove the tree, or deal with the consequences of keeping the tree where it is. The cost here may be relatively small (each time) but recurring indefinitely.
For some Steve’s the initial cost of tree removal may be too great, or simply beyond their reach. And it may well even work out to be a lot less than the overall cost of keeping tree where it is.
To offer a more tangible real life example, most people have probably been in a situation where they have been presented with an opportunity to purchase something that seems to have a very low purchase price. Let’s imagine that you want to buy a TV. For the size of the TV you want, almost all models are in the price range of $1000-$2000. Except one. It is being offered at $500. This price tag seems very enticing. After you make the decision to purchase it, it becomes apparent that the upfront cost is actually $1500, and that you will get $1000 cashback after applying for a rebate. Maybe you don’t think too much about what is involved in this rebate and just blinded by the $500 price tag. So you pay the $1500 asking price with every intention of getting your rebate.
If I am merchant I am heavily economically motivated to make it difficult for you to get your rebate. My hope is that you will be so discouraged by the difficulty of the friction I put in place that you will not end up applying for the rebate.
So there are definitely ways that merchants can make money off of consumers by levering the concept of friction, but how can consumers use similar principles? By thoughtfully adding or removing friction from their own financial practices, consumers can cultivate better spending habits, save money, and potentially increase their income through investments.
Removing Friction: Strategies for Saving and Earning More
Automating Savings (and other processes): This really is powerful. Set up automatic transfers to a savings account or investment portfolio. Most people know when their pay from work will hit their bank account. Set up an automatic transfer to occur the day after this from your bank account to some investment vehicle. Removing the friction of having to manually transfer money makes it easier to save consistently, leveraging the power of compound interest over time. This also has the added bonus of minimising the psychological discomfort of removing money from your bank account.
Simplifying Budget Tracking: Use budgeting apps that automatically track spending across various accounts. By removing the manual entry of expenses, consumers can more easily monitor their finances and adjust spending habits to save more money.
Utilizing Cashback and Rewards Apps: Register for cashback and rewards programs that automatically (this is certainly a recurring theme) apply offers when you make a purchase, either online or in-store. Removing the need to search for deals or enter discount codes can lead to consistent and effortless savings over time.
Investing in Low-Fee Index Funds: By choosing investment options with low management fees and automating investments, consumers can grow their wealth more efficiently. Lower fees mean less money taken out of your investment returns, and automation removes the friction of having to decide when to invest. Combining this with the idea of automating your savings, it might be worth considering setting up and automation to regularly transfer (and hence dollar cost average) into a robo-advisor or something similar.
Adding Friction: Intentional Hurdles for Financial Discipline
Implementing a 48-Hour Rule for Purchases:
Introduce a self-imposed rule where for any non-essential purchase, you wait 48 hours before making a decision. This added friction can reduce impulse buying, leading to significant savings. The specific timeframe is somewhat arbitrary here, but the idea is to essentially prevent impulse bu1ying.
Deleting Saved Payment Information:
Remove your credit card information from online stores and apps. By adding the friction of having to enter your payment details each time, you might decide the purchase isn’t worth the effort, which can curb unnecessary spending.
Using Cash for Certain Budget Categories:
For discretionary spending, like dining out or entertainment, withdraw a set amount of cash at the beginning of the month. Having to physically hand over cash, as opposed to swiping a card, can make you more mindful of spending. Handing over a $50 note certainly feels quite different to tapping was swiping a piece of plastic.
Setting Up Barriers for Account Withdrawals:
Placing savings in an account with withdrawal penalties or in a certificate of deposit can discourage dipping into savings impulsively. The inconvenience or cost of accessing the money can serve as a deterrent, ensuring that savings continue to grow.
The Power of Awareness: Making Informed Decisions and Achieving Goals
There are a lot of reasons why consumers should at least be aware of the incredibly powerful psychological concept of friction:
Awareness of friction points in transactions or interactions can help consumers recognize when their decision-making process is being manipulated or influenced, intentionally or not. By understanding how friction impacts their choices, consumers can make more informed decisions that are consistent with their long-term interests and values.
Identifying friction in the buying process, such as ease of payment or one-click purchasing options, can help consumers realize when they're being encouraged to spend impulsively. This awareness can lead to more mindful spending habits, reducing regrettable purchases and encouraging savings.
Understanding friction's role in security measures, such as two-factor authentication, can make consumers more willing to accept minor inconveniences for the sake of protecting their personal and financial information. This knowledge can lead to better personal security practices.
By applying the concept of friction to personal habits, consumers can structure their environment to make beneficial actions easier (reducing friction) and harmful actions harder (increasing friction). For example, removing unhealthy food from the house adds friction to eating poorly, while having a gym bag prepared and ready to go reduces friction to exercising.
Consumers can leverage friction to better achieve financial goals. Automating savings can remove the friction of deciding to transfer money into savings each month, making it easier to build wealth over time. By the same token, creating barriers to accessing savings can help protect against impulsive withdrawals.
The next time you’re checking out (online or in person), considering a purchase which may be an impulse buy, or making any kind of financial decision, think about whether or not future you is going to thank current you for the action or inaction you have taken.
You can find out more about the author at his website www.drryana.com