Why does it make sense for online players to move into the physical world and in-part renounce competitive advantages? How can both business models make sense?
The e-commerce giants are increasingly competing with traditional bricks and mortar retailers on their home turf, meanwhile high street stores are harnessing the power of technology to access more consumers and optimize both their business models and the customer’s experience. Basic human psychology, pure dollar availability and technology are the drivers for what are at first sight contradictory business models!
Instinctively, the adoption by traditional shop-based retailers, of an online presence, makes sense: lower overheads, more efficient stock deployment, customer demand etc. Indeed most traditional consumer offerings are by now hybrid businesses au fait with GPS signals, native advertising, content-rich applications, cookies and algorithmic distribution models. Macys has embraced the benefits of technology by using its stores as mini distribution centres and places upwards of 20 tracking cookies on a website visitor’s browser. Meanwhile Marks & Spencer’s recently announced they are reclaiming their online presence from Amazon, identifying it as a key battleground for market share and customer satisfaction. But why does it also make sense for online players to move into the physical world and in-part renounce those competitive advantages? How can both business models make sense?
Amazon has amassed revenue in excess of $60billion, six times that of its much older rival and nearest traditional competitor Walmart and Alibaba, the newest behemoth, sells more items than eBay and Amazon combined. However, the online contingent are becoming conscious of the limitations of an online-only play, with 85 – 90% of retail spend value in the US still happening in person in stores where they can try, buy, and take home immediately all while enjoying the unique atmosphere and service that encapsulates their favourite brands. Amazon, eBay and Google have all started to pay attention, and are broadening their offerings such as investing in same day delivery to try and provide the instant gratification that remains one of the primary benefits of real world retail.
There is convergence occurring: online players trying to emulate the benefits of a physical store such as getting goods to customers quicker while traditional retailers are trying to monetise connectivity to meet customer demands and satisfy behaviour, and this convergence is evolving into but are hybrid business models.
Online players are starting to offer physical stores, whether it is via a pop-up or “showrooming”, as Reebonz has done in Singapore, or by buying up real estate and moving onto the high street. Online want the brand strength and customer engagement a “store” can provide and big names such as Net-a-Porter, Google and eBay all seem to be moving this way. In addition as mentioned, the pure economic rationale for offering in person shopping is convincing: even now online only accounts for 5-15% of consumer spending (cars, petrol, groceries still predominantly being physical acquisitions) so physical presence means more opportunity for more dollars!
If online e-tailers are seeking to offer the benefits of physical stores, can high street retailers also reap the rewards of the digital world? Using location-driven advertising technologies and WiFi triangulation and other emergent tech, traditional retailers are indeed using or investing in digital advertising and promotion-based strategies to map, mine and exploit customer behaviour data “in-store” while smart mirrors in changing rooms, which can project the brand’s range onto the consumer’s reflection, are allowing the consumer the quick comparison and catalogue browsing they enjoy online. This piece seems to be set to grow and grow with Forrester research already showing that almost half of all retail sales in the US are in some way impacted by “the web”.
Hybrid commerce, pervasive commerce 2.0, or just shopping. Whatever you want to call it, it seems the online move into offline and the offline continuing development of online presence and increasing technology adoption to rival the online players is set to speed up.
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