The Conversion/Usability Framework: How Usability Impacts Profit

TL;DR: Usability is related to customer satisfaction and loyalty and therefore has a direct impact on profit. Yet, bad usability is abundant, especially on E-commerce websites. The Conversion/Usability Framework introduces usability as an additional lever on top of “traditional” means to increase profits, which can and should also be applied beyond E-commerce.

When businesses want to increase their profit (or simply keep it from crumbling), there are certain means that can be employed, such as restructuring processes, economies of scale, or exploring novel marketing strategies. Another lever to increase profit is the usability of products and sales channels, which is, however, surprisingly often neglected—even in E-commerce—although research and common sense suggest that it is directly related to customer satisfaction and loyalty. In this article, I analyze how usability influences revenue and costs (and therefore ultimately profit) and how the Conversion/Usability Framework can be used to improve both. Yet, to start off, let us first have a look at some basics.

Revenue, Costs, & Profit

Profit is at the heart of every business. It is determined using the profit function, which states that profit equals revenue minus costs [1]. The different parts of this function are influenced—directly as well as indirectly—by a number of factors [7]. Revenue is affected by both the price and the amount that is sold of the offered good. Then again, the amount of products a business sells as well depends on the price, which should be neither too low nor too high due to price elasticity. That is, customers will not buy an excessively expensive product, but at the other end of the spectrum it might be perceived as low-quality, thus also resulting in lower sales. Overall costs are composed of fixed costs and variable costs. The latter depend on the amount of products sold. The more you produce the higher the variable costs. Overall, this results in the following dependencies (the diagram has been adapted from [7]):

E-Commerce

In E-commerce, Amount can relate to, among other things, a product sold through a website (e.g., shoes, books, & vacation trips), or a subscription to a web service or platform (e.g., a domain, cloud storage, & movie streaming). On such websites—be it consciously or not—companies often engage “traditional” sales strategies that result in so-called dark patterns. To create a sense of urgency and scarcity, almost all travel booking websites I know constantly display warnings that “X other users are currently looking at this offer”, “only Y rooms are still available on the given date”, or “the current offer is valid for only Z more minutes”. Such warnings are usually kept in extremely bright colors, clutter the interface and distract from the actual functionality and task. To give another example, in many cases, buttons for canceling checkout processes or subscriptions are made as nonsalient as possible (or are even hidden) while purchase buttons are strongly highlighted.

The Case for Usability

Yet, evidence suggests these are bad practices. Sauro [5] found that “[p]erceptions of usability explain around 1/3 of the changes in customer loyalty” in a study that investigated correlations between the System Usability Scale and Net Promoter Scores. “Overtime,” he states, “if people think your product is usable then they are more likely to use it, more likely to recommend it and you are more likely to sell it.” [5]

In different research,  Kuan et al. [2] “found a relation between system quality and conversions, i.e., they identified three dimensions of usability that ‘explain over 70% of variance of intentions for planned purchase as well as future purchase.’ Thus, it is highly necessary for e-commerce companies to continuously evaluate their products with respect to good usability, in particular, to remain competitive.” [8]

Hence, the usability of an E-commerce website, as well as that of the product itself, directly influences sales numbers. Therefore, the above diagram must be extended to include the concept of Usability. From this results the following, which I call the Conversion/Usability Framework (due to the fact that sales in E-commerce are usually referred to as conversions):

The Profit Function w/ Usability

Usability has an impact on three of the variables of the profit function:

  • Usability → Amount: Based on what I described above, usability directly influences the amount of products a company sells. The better the usability of the E-commerce website and/or the product itself, the more products are sold due to more satisfied customers and more recommendations.
  • Usability → variable Costs: Better usability also leads to lower variable costs related to help and support. A more usable product is more intuitive to use and triggers fewer errors [3], which reduces customer support requests and replacement of defect products.
  • Usability → fixed Costs: Ensuring good usability requires to set up corresponding processes or incorporate usability testing into existing ones. This additional effort leads to increased fixed costs. However, firstly, appropriate design and QA processes should already be in place and easy to complement, and secondly, the benefits of good usability outweigh these increased costs in the long term.

Applying the Conversion/Usability Framework

It is important to note that the Conversion/Usability Framework is not exclusively valid in the context of E-commerce, but can be applied regardless of the product that is being sold and the way it is sold. This is because every product is used for something by the customer, and everything that is being used has an inherent usability. A teapot, a faucet, and a microwave oven, for instance, have a certain usability just like a website has.

When a company wants to increase its profit, there are certain “traditional” levers one can make use of. One way is to reduce unnecessary fixed and variable costs, e.g., by restructuring and optimizing inefficient processes or taking advantage of economies of scale. Another way is to increase revenue by, e.g., better pricing, exploring novel marketing opportunities, or entering new markets. As described above, the Conversion/Usability Frameworks introduces the additional lever Usability that—independent of the company and product—should never be neglected and can be used in the following ways:

  • Increasing sales: In order to increase customer satisfaction and loyalty and as a result sell more products, take measures to optimize the usability of both your product and sales channels. The questions you have to ask are: Is my product easy to use for its intended purpose(s)? and Is my product easy to buy? To be able to answer these questions with “yes”, employ established design practices and conduct regular user tests.
  • Decreasing variable costs: To minimize your customers’ error rates and as a result reduce customer support efforts and the number of products that have to be replaced, ask the same questions as above. On top, you should implement a Lean Support approach based on which you can incrementally create a knowledge base that lets your customers help themselves. Here, you should apply the same usability standard as for your products and sales channels.
  • Decreasing fixed costs: Since every usability process imposes a certain amount of fixed costs, one way to bring down the latter is to review and restructure existing usability processes. Tests with representative sets of users and realistic tasks that collect behavioral and attitudinal data [6] usually yield the best results. However, they cost significant amounts of time and money. If you have limited resources and need to cut fixed costs, certain trade-offs are possible. For instance, according to Nielsen and Molich [4], a simple and inexpensive heuristic evaluation with only 3 to 5 evaluators is already enough to find the majority of usability issues in an interface.

Conclusion

Good usability is a key quality aspect of any product or website that is, however, surprisingly often neglected by companies. Especially, on today’s E-commerce websites, we can observe numerous dark patterns that try to trick the customer into purchases and subscriptions. However, this ultimately leads to dissatisfied, disloyal customers.

By applying the Conversion/Usability Framework on top of “traditional” methods, it is possible to increase customer satisfaction and loyalty, reduce variable costs and sell more and better products. This should be common sense in E-commerce settings but is also applicable beyond websites. For a successful business, it is important to develop an understanding of the importance of some sort of Usability Thinking, no matter how you sell your products and which products you sell—be it teapots, microwave ovens, cars, or SaaS subscriptions.

References

[1] https://www.aatsl.lk/files/articles/Cost-Revenue-and-Profit-Functions-(English).pdf (accessed September 21, 2017).
[2] Kuan, Huei Huang, Gee-Woo Bock, and V. Vathanophas (2005). “Comparing the Effects of Usability on Customer Conversion and Retention at E-Commerce Websites”. In: Proceedings of the 38th Annual Hawaii International Conference on System Sciences (HICSS ’05).
[3] Laubheimer, Page (2015). “Preventing User Errors: Avoiding Conscious Mistakes”. https://www.nngroup.com/articles/user-mistakes/ (accessed October 19, 2017).
[4] Nielsen, Jakob and Rolf Molich (1990). “Heuristic Evaluation of User Interfaces”. In: Proceedings of CHI.
[5] Sauro, Jeff (2010). “Does Better Usability Increase Customer Loyalty?” https://measuringu.com/usability-loyalty/ (accessed October 12, 2017).
[6] Sauro, Jeff (2015). “5 Types of Usability Tests”. https://measuringu.com/five-types-usability/ (accessed October 19, 2017).
[7] squeaker.net (2010). Bewerbung bei Unternehmensberatungen: Consulting Cases meistern.
[8] Speicher, Maximilian (2016). Search Interaction Optimization: A Human-Centered Design Approach. Ph.D. Thesis. Technische Universtät Chemnitz.

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