Taking advantage of impulse purchases

At Hip Digital, we manage lots (and lots) of music stores. One thing that I've come to believe is that we are missing out on lots (and lots) of purchases because we don't capture the impulse when it hits our users. Currently, when a user wants to buy music they need to go through the tried-and-true add to cart -> checkout -> enter billing details -> confirm -> download process. While the process is very familiar it is not particularly quick so we lose lots (and lots) of buyers at each step. Based on attrition stats (about 50% bail at each step), it appears that only a fraction of users still feel the impulse by the time they download the music. That means we are missing out on revenue!

As a way to combat attrition, we looked at moving to a 'one-click' model similar to some other vendors out there. The ideal being a three-step click -> confirm -> download process. We wanted to keep the 'confirm' step so that people didn't accidentally buy something but otherwise we wanted music in the user's hands as quickly as possible. Technically, this is actually not that hard to implement. We need to set up some kind of registration process (with prompt to register if they have not already done so when they click to buy) which collects personal information and billing information. We then store that info permanently and reference it when the user has the impulse to buy. In this way the user avoids having to re-enter their information every time. Naturally, if we store all that info we also need to allow the user to manage it so some kind of account management interface is also needed.

What else? Well, we then change all of our 'add to cart' buttons to something like 'buy now' or 'download now' (the jury's out on which is better psychologically). When the user clicks the button they are prompted to login (once per visit)/register (once ever)/confirm (every time) instead of starting down the old process. Ideally, the prompt is some kind of pop-up so the page context is maintained. After confirmation, the pop-up presents the download link (or download manager for multi-track purchases like albums) and the user's impulse is satisfied!

So, why haven't we already done this since we've already figured it all out? Aside from some some possible patent issues (I can't believe someone can actually patent a 'one-click purchase' but that's another story) the main stumbling block is transaction costs. Yes, that's right. The cost to process a transaction is so big that we hope a user waits until they have a full shopping cart before buying. Our take on a $0.99 tracks is quite small (labels and publishers get most of it) so even a $0.25 transaction fee is deadly to our bottom line if they only buy one track. It's not so bad if they have $5 or $10 worth of music in their cart though. Thankfully, PayPal recently released a new micropayment transaction plan that goes along way to helping us sell individual tracks. It prices transactions at $0.05 + 5% which brings a $0.99 track transaction down to around $0.10 from close to $0.29.

Now suddenly the idea of capturing those impulse purchases is starting to make financial sense! Further analysis comparing the potential lost impulse revenue vs. the higher accumulated transaction costs for more, smaller transactions is needed but my gut tells me that we'd likely come out on top if we caught more sales. I'll try and post some of our analysis as a follow-up if I can.

UPDATE: I had this post in my drafts waiting to go when I read a compelling post by another blogger today. The post was titled How Paypal can help save media - and itself and it makes a very solid argument for further refining the one-click purchase process I described above by removing the need to register or even log in! PayPal could offer a cross-site solution similar to Facebook's 'Like' buttons that would provide safe, secure, convenient purchases. How great would that be!

Let's just hope the transaction prices are reasonable...