Understanding a Claim: An Example
Wherein payments are concerned, there are two areas that are of particular interest. These include claims surrounding sales uplift (including some potential pitfalls), as well as the fees charged by the different APMs. As we will see, sales uplift claims are frequently considerable, so payment processing fees – which are usually orders of magnitude lower than the average sale – are not nearly as significant. Still, in some cases, fees should not be overlooked.
The biggest claim made by most of the APMs is that use of their service will increase a merchant’s sales, also known as sales “uplift.” This is a good example for us to demonstrate what we mean about understanding claims. On its Website, for instance, PayPal claims that “Small-to-medium-sized businesses get an average sales lift of 14% by accepting PayPal.” This claim is based on a, “Q1 2006 PayPal phone survey of small- and medium-sized business doing a minimum of $120,000 USD in annual online sales.” Bill Me Later, on the other hand, simply claims that, “33% of Bill Me Later sales are incremental to the merchant.”
Prima Facie, it appears that we are comparing two different metrics, incremental sales for BML versus average (or presumably aggregate) lift for PayPal. This latter claim simply leaves us wondering what portion of the PayPal uplift is incremental. The BML claim leaves us wondering 33% of what total uplift. In fact, we would need to know both metrics for each APM to understand how they stack-up together.
So, the following claim would be much more meaningful: “BestAPM delivers an average sales lift of 12%, of which 75% is incremental to the merchant.” Although this is easy to understand, it is also potentially ominous. What this tells us is that 25% of the average sales lift occurred when customers switched payment types. This is known as cannibalism, and can affect the average payment fees a merchant pays, and can also introduce some more insidious consequences. In particular, merchants utilizing recurring payments should be cognizant of the fact that under certain circumstances APMs can cause relatively high refund rates. Higher refund rates can undermine the lifetime value (LTV) of customers.