Should You Let Customers Make In-App Purchases?

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More and more online shopping is moving to mobile. More than half of Americans have now made a purchase via a mobile device. And in 2018, mobile accounted for 66 percent of sales during Black Friday and Cyber Monday.

If you opened an online store, customers could shop from their mobile device using a browser. But browser experiences are sometimes lacking, and if you haven’t designed your store with mobile in mind, it might be frustrating for shoppers. And that’s not good. A study by Google found that consumers who have a negative experience in your mobile store are 62 percent less likely to purchase from you in the future.

So that begs the question: should you build a mobile app and allow your customers to make in-app purchases?

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Building an app isn’t the right path for every business. You need the funds to both hire a developer to build an app for you and then to market the app. And you want proof that any investment in an app will have a nice return. You should also consider other factors: Do your competitors have apps? Do you have the bandwidth to maintain an app? Does it make sense (given what you sell) to have an app at all?

Once you have an idea of whether or not building an app is the right call for your business, you should familiarize yourself with in-app purchasing and how it works. Here’s some info to get you started:

What is in-app purchasing?

In-app purchasing, or IAP, is the buying of goods and services from within an app on a mobile device like a smartphone or tablet. A retailer like Target, for instance, lets customers download its app free and then allows them to securely purchase items from within the app; those items are either delivered by mail or picked up in-store by the customer. Gaming apps, on the other hand, are often available free or for a fee, and then use in-app payments to let users upgrade their experience.

What items can you purchase from an app?

You can sell any product or service in an app that you can sell anywhere else online. Common purchase categories are consumables, entitlements, and subscriptions.

Consumables: Amazon is one of the best examples of in-app purchasing of consumables. You download the app free, and then you can buy anything from a toaster to running shoes without leaving the app.

Entitlements: A common entitlement sold through mobile apps is the ability to get rid of advertisements. For a set fee, you can upgrade your Spotify account, for instance, so you don’t have to hear any ads.

Subscriptions: A subscription purchase gives the consumer access to a service or set of products every month (or during a set period of time). For example, the New York Times allows you to access five articles free each month, but to read more, you need to pay a monthly fee.

5 benefits of in-app purchasing

Building a shoppable app can be a large undertaking, but the investment can pay off in more ways than one (the big one — revenue) if you are smart about it. Here are five benefits of having in-app purchases (IAP) in your mobile application:

  1. It monetizes your app: This is the main reason to offer in-app purchasing, especially if your app isn’t one that traditionally offers opportunities to buy (like if you run a content- or game-based app). The exciting thing is that there are a number of different models you can use to monetize your app, as long as in-app payments are available.
  2. It’s a new marketing channel: An app is another channel for you to communicate with your customers. You can use it to promote your products or give a special discount to app users. For example, Shutterfly gives users free 4-by-6 prints if you order strictly through the app.
  3. It can increase sales in multiple channels: More shoppers are turning to mobile during the purchase process. In 2018, smartphones were used in over one-third — or more than $1 trillion — of total U.S. retail sales for research, price comparisons, and purchases, according to Forrester’s 2018 Retail Best Practices: Mobile Web study. That means that providing customers with the chance to purchase through mobile may aid online or in-store sales as well.
  4. You get to learn about your customers: Every time a person uses your app or makes a purchase from it, they are generating data that you can learn from to make informed decisions about your business. Not only that, but also you can use customer behavior to create personalized offers and messages that are more likely to engage them.
  5. You can cultivate brand advocates: You want to get into mobile commerce to meet your customers’ needs — you want them to be able to buy from you whenever and wherever suits them best. Because you have a direct communication channel with your customers — and the ability to customize their experience — a mobile app is a huge opportunity to cultivate a relationship with them.

What are the challenges involved when allowing in-app purchases?

Like any technology, there are some challenges you need to confront when you allow for in-app purchasing. Here are three IAP challenges:

Need to optimize: As with all technology, mobile commerce is constantly evolving. You need to stay aware of those changes to ensure you always have an easy-to-use experience.
Keep up with regulations: When you allow consumers to buy from within your app, you’re accepting personal information. As with other forms of payment, you need to protect that data. You need to ensure that your app is PCI compliant and work with a processor that monitors for fraudulent activity. And as data security becomes more and more important, you need to keep up with future regulations.
Cannibalization of other channels: Some people worry that focusing on mobile commerce (or eCommerce generally) will hurt the performance of brick-and-mortar locations. If that’s you, you should reframe your thinking. Don’t treat mobile as a separate experience but as an extension of your other experiences. Most consumers use mobile devices at some point in their purchase process — even in-store — so use that to your advantage.

How to set up in-app purchases

If you want to venture into mobile commerce, the first step is to create an app. If you can code, you might be able to do this yourself. But more likely, you’ll need to engage a developer (on staff or freelance) or a developer agency to build out your app.

Your developer should be able to recommend in-app payment options that work from a technology standpoint, but you also need to think about how that in-app provider enhances the customer experience. You want to ensure that the payment process is intuitive and integrated with the look and feel of the app (it shouldn’t feel like a separate experience). You might also look for a payment option that allows customers to store their information for faster checkout.

And when evaluating in-app payment options, you want to think about how they work with the rest of your business. If you already sell online or in person, you should try to use the same payment provider in your app. Not only does this allow you to get a more holistic view of your business and how your customers are behaving, but also it cuts down on the time it takes to do other tasks like reconciling inventory, accounts, etc.

Square has payment APIs and mobile SDKs that allow your developer to build online, in-app, and in-person payment solutions for your business. For all our tools, we handle all the complexity of payments, like maintaining PCI compliance, mitigating fraud, managing disputes, and keeping buyer data secure.

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