All About … Luxury Ecommerce

episode Transcript

Podcast Introduction

You’re listening to Gateway to Ecommerce, a podcast by ClearSale. In this series, global ecommerce leaders discuss challenges, best practices, new tech and secrets to success. And now your hosts, Rafael and David.

David Fletcher

Hi, welcome back to the Gateway to Ecommerce podcast. I'm David Fletcher, Senior VP of Sales. And joining me today is our Executive Vice President, Rafael Lourenco. Today, we are actually going to talk about the luxury goods industry. One of the things that is important to understand is that luxury retailers, they face very unique card-not-present fraud prevention problems. It's different altogether. It's very unique in a number of different ways. We're going to talk through some of this today and share some of our experiences and share some of our knowledge based on the work that we've done for some very nice brands, such as Chanel, Timex, Prada, Ray-Ban, SuperJeweler, just to name a few. And I think that what you're going to be able to take away from here today, is you're going to learn some of the tips and some of the things that we've put into play to help our luxury goods merchants have more success, in not only preventing fraud, but in taking care of their customers.

We're going to talk a little bit about that today, because it's important. When you think about the celebrities and the social media influencers that are so popular today, and I can tell you as a father of young kids, they tend to watch things like the Instagram feed. And for them, that becomes reality and they're very in tune with the products and the experiences that people are having with products. And we're going to talk a little bit about that today as well. And I think it's important that we touch on false declines. And we're going to talk a little bit about false declines and the impact that they have on not only your business, but on your customers. One of the things that I should mention now is that there's also a link in the description here. If you take a look at the description for this podcast, for this episode, you will see a link to our page on clear.sale that talks a little bit about the luxury goods industry.

It will also give you some industry insights as well. So be sure to take a look at that. But I really want to start our conversation today in talking about some of those unique things that I've referenced here a few times. What is unique about the luxury goods industry, especially when it comes to handling fraud, preventing fraud and so forth? So Rafael, share some of that with us, please.

Rafael Lourenco

Sure, sure. So I think to get us started, it's important to understand that fraudsters will target luxury goods a lot. And we got to try to understand, put ourselves in their shoes and try to understand why, right? We're talking about things that are popular, easy to resell, and very frequently small pieces, right? So it's easy also to store and again, to resell. So very frequently, we think about fraudsters as someone trying to buy something for themselves.

But the reality is that more often than not, we will see organized crimes, right, David? You know and you've heard a few stories about a lot of transactions being attempted, fraudulent transactions being attempted on the same merchant, which makes me believe that we are talking about organized crime, right?

David Fletcher

That's right. Yeah, that's very organized. When they start to target certain retailers, it's really obvious. And that's become very popular, because they're for goods that are easy to resell because they don't have to convince someone that this is a good product, it's already known in the marketplace.

Rafael Lourenco

Definitely. And we're talking about obviously high-value items, which means that any discount you can offer out there in the market will make your product as a fraudster, as a reseller, let's say, much more attractive. So it's a completely different type of fraudster that is harassing the regular mass merchant retailers. If you compare it to the luxury goods retailers, right? So on one hand, you have the high-end merchants typically processing fewer transactions with the higher value, while the mass merchant, the regular merchant, we are always talking about when it comes to fraud prevention, usually we're talking about a hundred bucks or less in average order value, we are talking about a high volume. It's a different breed, let's say, in terms of fraud prevention. That makes it very challenging.

David Fletcher

Yeah, it really is. A great example is, how many people actually buy a $5,000 handbag in a given month? So every transaction for that luxury good merchant matters and is important to their business.

Rafael Lourenco

Yeah, definitely. And you hit the nail on the head. I mean, when it comes to these merchants and the amount of value concentrated on a single merchandise on a single purchase, every transaction matters. And specifically speaking, we're talking about, when it comes to fraud prevention, we always know that there are two types of mistakes, two errors that a merchant or a fraud prevention strategy can make. On one hand, you have what we just said about chargebacks, meaning approving orders and property. But we do have the other side of the same coin, which is declining orders that you shouldn't, which we call false declines. So Dave, can you walk us through a little bit about how these false declines, these false positives, can damage or what is the kind of mistake and problems that come along with them when it comes to this specific type of industry?

David Fletcher

Yeah. And that's an excellent point because false declines really matter when it comes to the luxury sellers. For a luxury merchant, when you have a false decline, not only are you losing the opportunity to sell your product, but there's another cost there. And that's the opportunity cost, where we get a better understanding of what happened to that customer. Or in this situation, it's someone that is really not a customer because we falsely declined their order. And the chances of them coming back are not good. As a result, we start to look at that and we start to think about what is the impact. And if you were to work through the numbers and look at the lifetime value of a customer, because you have some historical data that you can reference, and you look at that false decline for, let's say that $10,000 diamond engagement ring, what are the chances that that buyer's coming back to buy their anniversary bands. Right? They're not, they're not going to come back. And so there's such a negative impact there, and it's not like they didn't get to buy a $40 gadget.

Rafael Lourenco

Yeah.

David Fletcher

It's a very high-ticket item. And so the impact is larger.

Rafael Lourenco

We kind of, let's say, as a merchant, the merchant or the manufacturer just convinced someone to make a purchase of, let's say, the $10,000 ring you just mentioned. And as you said above, these merchants very commonly brought the customers in through their social media posts and stuff like that. And I'm sure that a bad experience will also go back to social media. So imagine a celebrity or someone being declined, I mean, being willing to buy something and unfortunately there aren't that many people that can buy a $10,000 handbag or something. Right? And they will be heavy users. They will be the same people that are open or have the money to buy again. And I mean, again, if they were brought in because of the social media, what will happen if they get declined and they get mad about their customer experience during this purchasing process?

David Fletcher

You're absolutely correct. There's a social media impact on a false decline. And these are things that we like to educate our merchants on every day to help them understand why false declines really matter. It's not that, and I talked to a merchant just recently that said, "It's true. I do have a false decline or two here and there, but you know what? I feel confident they're going to come back because they know where we source our diamonds. They know that they want this experience." Well, the thing is, that market changes every day. And we can't say that they're definitely going to come back and buy from us. We don't know that. And when you start thinking about the impact of social media, adding that into this scenario, that's the one variable that a merchant, you can't control that. You can't control what the celebrity is going to get online and say about your particular product or about your store.

And there's things there that we can do to influence them, influence the influencer, if you will. But we have little control over them. And so it's important that we are taking care of our customers and that we're not making mistakes with a false decline. It could be someone that's very influential, and as a merchant, you wouldn't even know that.

Rafael Lourenco

Yeah. And what scares me the most is that the fact that you will not always know that you're making that mistakes, right?

David Fletcher

That's right.

Rafael Lourenco

So you're trying your best. You are declining based on whatever rules, algorithm, whatever you have in place for fraud prevention, or even a manual reviewer that thought that this transaction was not good enough. And we will talk in a bit about what makes those transactions sometimes look weird, but they may be good.

You will decline these orders, and you will learn that you made a mistake from the worst way. You are trying to do the best. And even when you're trying to do the best, when you decline these orders and they turn out to be actually good orders and good customers, again, you may be surprised by something on social media or through your customer service. And these people are used to a very interesting and detail-oriented and consumer experience-oriented journey, a purchase journey. So if they go to a brick-and-mortar store, they will have the perfume, the few people in the store. They want to have the same experience online. And that has a lot to do with not just blocking the person from buying. Sometimes it might sound even a little offensive to them, right?

David Fletcher

We did some research or we had some research that we collected. And one of the things, and I think I shared this on episode three of our podcast, but here in the U.S., the numbers were at 33%. So if a merchant declines my payment, I will never place an order with that merchant again, 33% of the U.S. buyers said that. That's a big number. That's a third of your false declines are guaranteed not to come back.

Rafael Lourenco

Yeah.

David Fletcher

And we work so hard to get our customers. We don't want to have something like this get rid of them, then push them away.

Rafael Lourenco

Yeah. You're completely correct. And again, it gets back to the point you mentioned before, like the lifetime value of these customers is definitely threatened because we're talking about one-third of them saying that they wouldn't come back. If we look at the same survey you just mentioned, other countries will show even worse results. The United Kingdom, around 40%, and even as high as 51% in Mexico. So we're talking about sometimes, depending on where you're selling your goods to, where you're shipping, we're talking about consumers that can be very resistant to try again at the same store. And as you said, the loyalty, especially on the online retail industry, is not there. We’ve got to make sure we make the customer experience as good as we want in the first attempt, and we don't want to risk them not to come back.

David Fletcher

Right. Exactly, exactly. Yeah. And you mentioned some of those other areas, and because we do so much work in Canada and where we have such a big focus on Australia, I want to mention those as well. They're both right under 40%, at 38% or so. And so there's no area in the world that is going to be low. False declines matter. False declines will certainly impact your buyers. And especially when we're talking about luxury goods, when you don't have that many transactions to begin with, it matters. It's very important that you're taking care of those customers.

And I can tell you for me personally, I have bought every piece of jewelry for my wife from the same place. And I've obviously never had an issue, and I will continue to buy every piece of jewelry from that retailer. And that's how people are, because they get engaged and they trust.

Rafael Lourenco

Yeah.

David Fletcher

They have that trust there. And once they have that trust, they are going to be committed to you. And that false decline breaks that trust immediately.

Rafael Lourenco

Yeah. That's why everybody says that you only have one chance to provide a first impression. Right?

David Fletcher

That's right.

Rafael Lourenco

And we don't want it to get ruined by any fraud rule or hard decline or anything like this.

David Fletcher

Yeah, no doubt. Hey, so let's talk a little bit about the approach. We've talked about the industry, we talked about the customers, we've talked about false declines. Let's talk a little bit about the screening and the fraud prevention, because I mean, Rafael, you've been doing this for quite a while. You've got tons of experience and you've worked with these large luxury brands. What would be some of the tips that you think that we should be sharing with some other brands that might be listening?

Rafael Lourenco

Sure. So, yeah, I've been personally involved in defining processes and rules and thresholds and stuff like that for luxury goods, retailers and manufacturers, for a long time, as you said. And I learned a lot throughout this process. And the first thing that I learned is how unique it is as we said in the beginning. Right? And I'm going to start by telling a quick story where we're talking about, I mean, we're talking about luxury goods in general. But jewelry is one of the, of course, the stars in this industry. Right?

So imagine that we are talking about potentially trying to reach out to customers throughout this process. Right? So we just talked about avoiding false positives, avoiding, declining and positive transactions. And when a transaction is very risky, eventually you're going to have to go through a manual review process. And the manual review process frequently involves a phone call. And then obviously the first thing I want to mention is how worried you're going to be with this phone call, because we're talking to eventually someone that is rich, that's wealthy, and we don't want to make questions that embarrass or offend them. Right?

They might have several addresses; they might not be willing to share information. So the first thing is the concern to approach these people in a way that doesn’t scare them. Right? So I don't want to just start talking to someone that is very rich asking about family members or personal information, addresses, phone numbers, because they just don't want to share. So the first approach I would say, or the first tip, is trying to do it just confirming. So let's say I'm talking to you, Dave, and trying to confirm a transaction that you just made. I just ask you, "Is it correct, the address X," whatever, right? "Do you remember a phone number, A, B and C?" And this kind of confirmation where I give you the information and you just have to say yes or no, rather than making questions that may make you a little scared.

But one story that I want to tell you very briefly is we are talking about selling jewels and we are talking about phone calls. So in one hand you have the surprises. So how many times has it happened with ClearSale in the past before learning that we are talking to a family member that is actually the person to whom the gift was intended, and then there was a surprise, right? So that's not good. Second thing is, unfortunately we have to admit that some people are buying to people that are not exactly who they are engaged with. Right?

David Fletcher

Right. That's right.

Rafael Lourenco

You don't want to ask a wife or a husband about a transaction if you're not sure that they are aware of it. So this is a funny story that I want to start by, by saying how unique and how sensitive these phone calls and these reviewers can be.

David Fletcher

And this is exactly why outsourcing to someone like ClearSale matters, because we're aware of this and we're in tune with some of the things that have to happen on the manual review side. Because you can't call them and interrogate them. It's not like I'm going to challenge whether or not this was your purchase, right? We have to be very professional and very polite, as we're representing that brand and that merchant to make sure that it is accurate. And you brought up a really good point that I think is an issue with a lot of luxury goods — these individuals typically do have multiple homes. They have a winter home, they have a summer home, they have investment properties. So they have different addresses, and a lot of us in the fraud prevention space are looking at data that basically gives us information about their addresses. Well, they might not match.

Rafael Lourenco

Which reminds me of how important, and we can't reinforce that enough, how important it is not to automatically decline based on those rules and those hard.

David Fletcher

That's right.

Rafael Lourenco

So we were talking about not matching AVS or whatever. The reality is the person can be shipping these goods to whichever of the five or six addresses they have.

David Fletcher

That's right. That's right. My goal would be to just to have two. Yeah. So no, that is so true. And the other thing is it's part of the relationship. And so you have to help build that customer relationship for the merchant, even though you're calling to verify and to validate this charge, you still have to do it in a way that's going to help build the relationship and not threaten the relationship that the merchant has worked so hard to build.

Rafael Lourenco

Yeah.

David Fletcher

It's very similar to the whole issue with the false declines. We don't want to push this customer way because, "Oh my goodness, I tried to buy my $10,000 necklace and someone called me and asked me all these questions about my purchase and made me feel uncomfortable." They may not want to come back and buy again because of that experience. So it's really important that that is treated in a very professional manner.

Rafael Lourenco

Yeah. And I think it's specifically challenging because we are saying almost opposite things here, and it's as complex as it's sounding like, because on one hand, you cannot just decline the orders based on any assumption. Right? So we want to give the benefit of the doubt to any order, because some of them will look like frauds. We talked about multiple addresses. It's hard to reach out to the person on the phone. Also, multiple contact info, like phone numbers, not uncommon in this industry. You can't talk to anybody else except for the buyer. So that makes things much harder. I mean, you can't run away from making a very good decision because you can't rely solely on the rules and you can't rely on simplistic manual review. So you’ve got to have good manual reviewers and good processes in place, especially because you were talking about customer experience and how to build this relationship.

And I want to add an element to that. When we're talking about people that travel a lot and brands that are very well-recognized, right? So you dropped a few names a few minutes ago. And there are stores of these Pradas and Chanels, there are stores of theirs everywhere, in many major cities. And we're talking about a really multichannel type of relationship or omni-channel type of relationship where the customer will go to the store and look at the product and eventually make a phone call and double check and then call someone else to make sure this is the right product. And then after all this process, they may place the order on the phone, which is also a card-not-present issue. Right? And they can end up being on the website, making an ecommerce purchase, or even get back to store.

So it's really a multichannel relationship. And that also affects fraud prevention because phone orders are especially challenging when you don't have access to all the data points you would have on an ecommerce order. A lot of people have been relying their fraud prevention strategies on behavior analytics, IPs and stuff that simply do not exist on phone orders, right, David?

David Fletcher

Yeah.

Rafael Lourenco

And it sounds a little old fashioned, but it's still a big thing in this industry.

David Fletcher

It is. And I'm glad you brought that up because I was going to mention that as one of the issues with the fraud prevention in this industry are those phone orders. And you're right, we have the same responsibility in terms of preventing fraud, and you have the same concerns of not falsely declining what potentially could be your best customer of the year.

Rafael Lourenco

However, you have so many less data points in order to make that decision. And so it is difficult. It's not an easy task. It's great that you mentioned that. I was going to bring up one of the things that came to mind as you were talking through that is getting the process down for a merchant where maybe there are some additional things that they could be asking, or they could be collecting from the customer during that process, that would help. And so that would be important. And that's something that we always do. We're always talking about the process, the business flow, if you will, of our merchants. And there's some opportunity there when we're talking about them doing telephone orders and what that looks like. And we have a few customers, no doubt, that do quite a few telephone orders. Is there anything in that, that you would like to share in terms of some tips or some things that merchants could consider when doing telephone orders that would help?

Yeah. There are a few things. The first of all is to understand that, I think we already mentioned that a few times, but I want to reinforce the fact that we are talking and when it comes to luxury goods, we're talking about fewer orders, but a higher amount, higher-value orders. Right? So we are talking about situations in which we are less worried about the scalability of it, right? So when we were talking about other types of merchandise, we usually talk about better integration and faster websites and one type of concern. And here, we’re talking about people that are eventually okay making a phone order.

They are okay taking a little longer, as long as the customer experience, the relationship is very well-built, right? So we even have, at ClearSale’s solutions, for instance, for menu insertion. So we work with Burberry, for instance, and they, again, going back to the multichannel discussion, they will have someone at the store and then they will leave the store. They will make a phone call and then someone will just place the order in our system manually. Because it's not that they are having 10,000 orders a day of this type, right?

David Fletcher

Right.

Rafael Lourenco

It's actually a person filling out the form in our solution and our interface, in our customer interface, in which they will fill out those orders. The one thing that I want to mention is that having a partner like us or anybody else out there will help merchants to even avoid one thing that is unfortunately quite common, on phone orders, that is internal fraud. So you have someone handling credit card numbers. We know that it's not ideal, but we also know that it's kind of a common practice in this industry where people will say their credit card numbers on the phone and the person can just take a note. You know what I mean? So when you see, for instance, the same salesperson that is making more sales this month than they were making before, let's say three times more sales, the same rep. Well, yes, it could be a lucky month, but it also can raise a flag.

So we're talking about phone orders, as you said, less data points. But now we have an additional element here, that is the sales rep that is making the sale. The good thing about having a third party is that it's not you as a merchant or as a business owner, you are investigating your employees, but actually a third party. So when it comes to phone orders, I insist and I recommend always to have a third party reviewing the process, as you said, but also flagging and looking very closely to who is doing what, because the fraud can be from anywhere because it's just worth. I mean, it's $10,000 AOV sometimes.

So we're talking about whatever type of organization or organized crime here is worth. I mean, if I can make just one bag out of it, I can make my month.

David Fletcher

Right. That's right. So Rafael, you are 100% correct. And that is great information. And I'm so excited that we were able to share some of this information and share some of that experience with our listeners. But as we wrap up today, remember that our fraud prevention program that factors in luxury shoppers' habits, effective telesales screening, comprehensive transaction review, and excellent customer service can protect high-profile merchants from the fraudsters who target them.

So by applying some of these best practices that we talked about today, luxury retailers, you can certainly build strong relationships with good customers and grow a stronger business. If you'd like to learn more about how to prevent ecommerce fraud, you can visit our website. We have a ton of resources dedicated to this topic that can help you on your ecommerce journey, at www.clear.sale. As we mentioned before, we have a link in our description that you can learn more about preventing fraud as a luxury goods merchant, which also includes some industry insights. And if you have any questions or would like to suggest a topic that you'd like for us to cover, please send an email to podcast@clear.sale.

And I want to thank my partner today, Executive Vice President, Rafael Lourenco. I think we had a great conversation. Loved having you on with me today. Subscribe to our podcast on Apple Podcast, Spotify or Google Play and leave us a review. You can join us next time for episode number seven, where Denise Purtzer, our VP of Partnerships, and myself will continue to discuss e--commerce fraud with a focus on us Australia. Thanks again for listening and see you next time.

Podcast Outro

For more ecommerce insights visit us on our website at clear.sale.