Conversion rates set to rise as ecommerce companies rely on algorithms

The importance of algorithms becomes evident by looking at the current online marketplace conversion rates, which are less than 3% compared with that of offline retail at 22-25%, economictimes.indiatimes.com reports. Ecommerce companies are stacking up USD 150-200 million in losses every month, throwing money at customer acquisitions and deep discounts. Profitability was not a priority but now ecommerce companies face a funding squeeze and pressure from investors to show profits.

In March 2016, the Department of Industrial Promotion and Policy, a nodal agency for investments, while allowing 100% FDI in pure marketplaces, banned deep discounts, predatory pricing and big billion sales. With no room for manoeuvring prices to attract buyers, the route to achieve better conversion and reduce losses is big data analysis and algorithms, the source reports.

In logistics, shipping, warehouses, 5-10% can be saved if data is correct. Algorithms help a logistics firm to decide on the best delivery route. Most companies use Hadoop hbase (server software) to analyse big data, machine learning tools like R & Paython, which use data to create business models and web traffic data analytics from Alexa, Google Analytics or Adobe`s Omniture. Besides the big data analytics tools, inhouse teams write codes for specific outcomes.

Shop clues transactions have improved ten times in the last 12 months thanks to algorithms compared with the traditional approach of mass advertising. Data analytics can lead to 3-7% improvement in bottom line and at least 40% improvement in conversion rates in the short term, the source reports.