Online to Offline (O2O) business is an indispensable strategy that saves the retail industry.
Recently, retailers all around the world have been bombarded with reports and predictions about global online sales growth.
E-commerce is growing ten times faster than any other channels in the UK, for example, and its growth rate is reported to nearly triple that rate of the entire industry in the US in the first 3 quarters of 2017. E-retail sales are projected to account for 14.6% of all retail sales worldwide in 2020, equivalent to 27 trillion US Dollars.
Those huge number of e-commerce’s revenue and how fast it is growing are really worrying traditional retailers.
However, the scenario of online channels wiping out offline ones seems to be impossible, since the retail industry has shifted into a new concept of Online to Offline (O2O) in which online and offline channels share the same importance in achieving success.
The most significant signals of this shift recently are the Amazon’s Whole Foods deal and Alibaba’s strengthening its O2O strategy, which shows the interest of the e-commerce giants in moving to a business combining online and offline channels.
For those who want to better their retailing commerce, it’s time to start learning about O2O commerce, how it works, how it benefits your business and how to start an O2O business.
|Table of Content
1. O2O Meaning
2. The benefits of O2O Business
3. Why is Online Expansion Necessary for Store Owners?
4. The Importance of Physical Stores
1. O2O Meaning and the Momentum of it
As it’s easily noticed, O2O stands for Online to Offline (or Online-to-Offline). This is a new business model in which retailers using both online and offline channels as an intensive strategy. Using online marketing and advertising methods, retailers find potential customers online, raise their awareness of products and services, and draw them to make purchases in brick-and-mortar stores.
A popular example of this retail concepts is when a customer receiving an email offering a discount code, then visit the store to use this code and make a purchase.
This concept raised for the first time a few years ago, in the context of online channels expanding its popularity, but becoming complements of physical stores instead of competitors.
Starting an online sales channel, store owners gain a bigger customers pool. With smaller budgets, retailers can reach more customers than those would ever come across their doors. Moreover, those customers are identified online based on their profile and favor, which helps generate more potential customers than traditional marketing. Other benefits of having a webstore have been recognized by store owners, which incentivizes them to start an O2O business.
This strategy also attracts digital-born retailers, resulting in a new revolution in retailing sector.
Initially, the O2O revolution was led by Alibaba, the second worldwide e-commerce giant. In a conference held in Hangzhou in 2016, Jack Ma, the founder and chairman of Alibaba Group Holding’s had coined a concept of “New Retail” which is driven by “the integration of online, offline, logistics and data across a single value chain.” As for the reason, he pointed out that “with e-commerce itself rapidly becoming a ‘traditional business’, pure e-commerce players will soon face tremendous challenges”.
Alibaba’s “New Retail” Explained
Recently, the Amazon’s acquisition of Whole Foods also shocked the world, signaling for its extending footprint into offline sales channels.
That the two largest e-retailer on earth showed their interest in the O2O commerce is the strongest evidence for how powerful this retail model.
– – –
Back in 2010, people started to highly regard the potential of Online to Offline commerce as calling it a “trillion dollar opportunity”. At the very first stage, the main core of this strategy was “to find customers online and bring them to the real-world store”. Based on this idea, retailers have improved the O2O strategy, making it more efficient and powerful.
To seek for customers online, retailers use online advertising or marketing tactics such as promotion emails, social campaigns or blog posts. Those methods help identify the target customers and draw them to visit your physical stores.
To encourage online shoppers to make purchases offline, retailers offer them benefits ranging from in-store pickup to in-store cash payment, testing, and fitting, free shipping, web-returned center, pick-up location or center for online sale in their actual retail stores. The strategy can be varied depending on the product lines the retailers are selling.
|Bonus: Download this Ultimate Guide to Start a Loyalty Program for your O2O Business.|
2. Benefits of O2O Business
The Benefits that even Amazon and Alibaba can’t Resist.
The first and most important benefit that O2O brings out to retailers is the brand reputation. Branding is much simpler and more efficient with online capabilities like advertising, social media, mobile wallet, SMS, mobile app, push messages, proximity services, combined with real-time data analytics, system integration, and AI.
Take advertising as an example. A man goes online and searches for a gift for his girlfriend on Christmas Eve, right in an article giving recommendations for Christmas gift, he can see a picture of a Christmas set from a cosmetics brand. If the man clicks on the picture, he is showing his interest in the products and consequently becomes a potential customer of that brand. Those kinds of marketing tactics these days help create the brands, products or services awareness with less time and money spent.
Another key factor to the success of the O2O business is that it enhances customers’ loyalty and increases revenue at the same time.
O2O commerce follows a strategy that allows the retailer to optimize customer experience. During their shopping journey, customers are provided with online and offline benefits that they can’t resist. With all the information about the brands, products or service available online, customers can make quicker and smarter decisions on what they’re gonna buy.
Moreover, the purchasing is much more convenient and personalized that make them feel it’s so enjoyable to buy something.
O2O commerce also lets retailers build up a database of customers’ information including their name, age, address, interest and even shopping behavior. It then improves the customer engagement strategy of the brands, leading to higher level of customer loyalty. Once a company earns engagement from customers, that company will see a dramatic increase in revenue, both short-term and long-term.
One more benefit of O2O retail is that this strategy accelerates your speed to market by minimizing the time to market. Collecting customers’ interest and shopping behavior online, O2O helps reduce the length of time it takes from a product being conceived until its being available for sale. For example, online channels can let a fashion brand know which items, colors or styles are the most-searched, helping them anticipate the demands of customers and avoid out-of-stock status.
DID YOU KNOW: Omnichannel Retail: The future of O2O Business
3. Why is Online Expansion Necessary for Store Owners?
For a long time, digital retail was considered as the competitor of the traditional one. However, the two business models are treated as compliments now since retailers realize that an integration of online and offline channels brings out much higher revenue than one channel stands alone.
With store owners, an online expansion is inevitable to improve their business at the age of digitalization. First and foremost, online channels make collecting lead and customers’ data for marketing purposes much easier and more effective.
Most of the time, customers make purchases at physical stores leave with no or little personal information gathered. It always takes time for store staff to collect very detailed information after a purchase, not to mention prospective customers who leave without buying anything and will be left unreported.
Conversely, gathering customers data is much more effective since customers do it on their own time on your website. With visitors who don’t buy any items at the first time, information can still be collected and converted into leads to be nurtured. With a rich database of customers, retailers can use marketing methods, like email marketing, to convert leads to customers or enhance customers’ engagement with their business.
Besides, online channels help retailers reach new prospective customers when they use search engines.
It’s obvious that the possibility that someone finds your online store through search engines is much higher than their walking across your front store. Especially, in the “Internet of Things” era when half of the global population own a smartphone, shoppers are searching for products online before buying anything on a daily basis. Therefore, selling in physical stores only will miss out many potential customers and lessen the revenue.
Another factor that makes a webstore important to the retailer is that it allows customers to shop where and when they are, and in the way they prefer.
Online channels make your business available 24/7 for customers. They don’t have to wait until 8 am the following day to buy a dress that they fall in love or rush after working hours to queue up for a lipstick.
Moreover, customers are empowered to choose a method of payment and shipping, which make purchasing more enjoyable. Retailers can offer in-store cash payment or payment booth as for simpler payment method, and free shipping, in-store pickup, pickup location or center for online sale for more convenient delivery.
Last but not least, customers will be served in a more professional manner with online customer support.
Online methods allow retailers to communicate better with customers since they segment them into different groups based on the personalized information. Customers will get information and services that are designed to target them, which brings about more effective support while at the same time avoiding wasted time and money on unnecessary service.
Furthermore, online channels will increase the visibility of store promotions, make it available to every customer just by an email or a push message. Customers will have various ways to access the promotion program rather than only be informed about them when being in the store.
4. The Importance of Physical Stores
The Reason that Urges Giant Digital Retailers Expand their Offline Footprints
However fast the e-commerce growing, more than 80% of purchasing is still happening in brick and mortar stores. This is because no convenience can replace the feeling of trust and satisfaction when a customer can see directly and touch a product.
In some product lines like fashion and accessories, for examples, shoppers still prefer buying items in store rather than online. They want to touch, feel and try them on. Though shoppers are in a habit of searching for an item online before buying, it’s unsure that they place an order right on the website. Therefore, a physical store that customers can visit and buy things directly will build trust on them and make them feel more likely to come back to that brand.
Physical stores also create high revenue since statistics show that customers who order online and pick up in store, or exchange items in store tend to buy extra things.
In-store pickup seems to be one of the hottest features that e-commerce businesses offer these days. It allows customers to start their buying journey online and finish it offline, as long as they are satisfied with the products and have a convenient shopping experience. Besides, the in-store return is also a popular tactic of retailers since they realize that most of the customers find it so complicated and time-consuming to send back an item via mail or courier.
In both cases, when customers visit a brick-and-mortar store, most of them tend to buy extra things rather than their first concerned products.
One more reason why an e-commerce business needs a physical store is that face-to-face customer service is proved to boost sales. Though customers now can search for information online, they’re still interested in receiving products advice from store staff. A survey of Time Trade’s State of Report points out that 30% of customers want to get suggestions from sales assistants and 90% of them tend to buy after receiving a reliable recommendation from staff in store.
Other keys factors that make physical stores become powerful compliments of e-commerce is that it saves times and money with better logistics, and boost traffic to the online shops.
The supply chain is all always the Achilles’ heel of retailers, and it’s even more complicated regarding digital retail. With the large scale of an e-commerce business, retailers must guarantee a flawless management of inventory and order fulfillment over various localities. A brick-and-mortar store will serve as a warehouse and a fulfillment center, which help retailers improve their distribution system.
Besides, opening a physical store increases the number of visits to the e-commerce site, according to a report of Death of Pureplae Retail. These factors significantly facilitate a digital retail.
As the retail world is transforming and innovating every day, retailers must stay tuned and keep themselves updated with all the latest revolution. It’s obvious that O2O business is now one of the most popular strategies throughout the retail industry and no one wants to be the outsider of this race.
Keep updated with our next sessions in this series of blog post for further insights of the powerful Online to Offline (O2O) business model.