How can digital brands utilize online-to-offline(O2O) strategy to optimize brand growth?
A detailed breakdown of online-to-offline business: O2O commerce is an indispensable strategy for Direct-to-consumers brands and online retailers.
E-commerce, a popular mode of retailing, since the era of Internet, has transformed the way business is done today all over the world. As of 2020, the Indian retail market is estimated to be worth $883 billion out of which E-commerce comprises 5% and is expected to grow by 26% lead by E-trailer and Digital Native brands.
Buying a product online and going shopping in-person were two activities involving separate customer journeys and experiences. As internet and technology outspread nooks and corners, the gap has become thinner, with online brands branching out into the brick-and-mortar stores, to gain a substantial share of the Indian retail market, which is predicted to be a trillion-dollar market in 2022.
The new generation of disruptive brands are shaking up retail with D2C (Direct-to-consumers) approach by eliminating middlemen. The D2C trend is growing at an extremely rapid pace because it allows brands to sell their products at lower cost than traditional retail and manage end-to-end control over manufacturing, marketing, and distribution. It is evident that the digital-first brands take multi-channel approach to sells their products on different online channels such as Web store, online Marketplace, mobile apps, and social media.
But most of the online-first Indian brands struggles to expand into offline channel, hence they pause the D2C model and take a traditional route to build partnership with traditional retailers or wholesalers or distributors. They consider this is the easier and safer approach to expand offline which affects their pricing model, creates operational overhead, and they follow distinct strategy for online channel and offline change.
To overcome the traditional offline challenges, the digital brands must reinvent their offline strategy, and it is the perfect time for businesses to get on board with the D2C way of expanding offline, called O2O Commerce (Online-to-Offline commerce).
So, what is O2O (online-to-offline) Commerce?
Online-to-Offline commerce is a retail strategy that uses brick-and-mortar stores as a channel to bring online customers to a physical store to create customer interaction and in-store experiences. Many pure play retailers and digital brands are adapting to this strategy, to integrate online and offline to provide customers with an integrated retail delivery model. With Indian E-commerce retail continuing to embrace technology and grow, it is inevitable that O2O strategy is a game changer for online brands; as a strategy of shifting into the concept of New Retail, the future.
O2O Business Model — the stepping-stone into the new age retail for DTC brands
It is possible to think that technology drives changes, forcing businesses to develop and invest in technology. The reality is that the sequence of any transformation starts from an audience, a customer in our case.
A customer expects new content and shopping experiences, followed by technological transformations quickly adapting to the customer expectation, which changes the market reality. The change is always driven by the customer. According to a 2017 Harvard Business review of more than 46,000 shoppers tend to be:
- 20% of the retail consumers were store-only shoppers.
- 7% of the retail consumers were online-only shoppers.
- 73% of the retail consumers used multiple channels.
It is obvious to conclude that consumers, ‘like’ shopping at a store, compared to shopping online, and rather ‘love’ shopping using multiple channels. Corresponding to this customer behaviour, successful DTC and DNVB have adopted the O2O business model, proving that physical products gain more loyal fans. This sets the stage for 2020s to be the year of Online to Offline (O2O). As companies from all three categories (Physical retailers, eCommerce, and DTC) try to differentiate and expand their channels, to enhance the customer experience and build more loyalty.
O2O business model Spotlight: Zivame
Zivame is an online lingerie store, launched in 2011 as an e-commerce platform which later pivoted as an online brand. In 2016, the company reported 84% increase in net losses, at Rs. 54 crore, and 38% growth in its net sales, at Rs. 62 Crore, owing to the company’s advertising and marketing spend, which had doubled during that period.
In 2017, the company re-strategized the sales policy and focused on growing sustainability with the right mix of online and offline strategy. The company has since established 26 brand stores in the year 2018 and had reportedly planned to set-up around 100 stores by 2020, with an investment of approximately Rs. 30 crores.
Interestingly, with the launch of the integrated online-and-offline business model, the brand claimed to witness a spike in the revenue. Zivame believes the renewed Online-to-Offline commerce narrowed their losses from 32 crore in FY18 to 20 Crore in FY19, with prospects of breaking-even in 2020/2021.
Continue reading to understand how e-commerce businesses can scale with their online-to-offline strategy.
With technology being quicker to adapt to consumer needs, businesses not only have to develop a strategy to fit with the consumers, but also level with technology and thus, Brick-and-Mortar retailers face an omnichannel struggle, when they roll out to technology platforms to connect their web store, offline store, and inventory.
However, the challenges are even bigger and unique when an online retailer envisions to expand into offline channels, i.e. a physical store, because they possess minimal to zero experience in running offline operations combined with omnichannel technology.
With a multitude of platforms available, with minimal upfront costs, it is very easy to start an E-commerce business in the current age and time. On the other hand, setting up a physical retail store incurs a high initial cost, more time, and operational overheads and thus physical retail has traditionally been considered a competitor to ecommerce businesses and functions as a separate division from it.
The core objective of O2O strategy is to increase sales and customer satisfaction by using both web and offline channels to operate a business, treating both channels as complementary to one another. An O2O strategy is unique for every brand and fully customizable, according to the factors influencing the growth of the brand, such as product category, customer demographic, technology, value offering, retail formats, and budget. It is thus, imperative to pick the right O2O retail format that fits your business.
Types of Retailer Formats
- Brands using the Chain Retailer Format
Van Heusen Innerwear, an apparel brand from Aditya Birla Fashion and Retail (ABFRL) is an example of a successful Chain retailer with 45 exclusive outlets across India.
Ideally, growth phase brands backed by investors and brands carving a long-term strategy to become steadily profitable can opt for chain retailer format. Some other Indian Online brands with exclusive chain retailer stores are Zivame, Urban ladder, and Caratlane.
- Brands using the Franchise Retailer Format
Lenskart is an Indian optical (eyewear) brand that started off as an Online business and successfully expanded to 330 stores in 70 cities with its uniquely crafted Franchise model. The Lenskart franchise model returns 25% margin to the partner, and they require 20,00,000 investments for royalty fee and store infrastructure set up. Some other Indian Online brands with franchise retailer model are Patanjali, Archies, Firstcry, Jockey India.
- Retail-as-a-service Format(RAAS)
Similar to software-as-a-service, brands subscribe to Retail platform to advance their physical store infrastructure and technology. By using RAAS business model, digital retailers cut costs of building it themselves, which can also be time consuming and creating corporate overheads.
Retail-as-a-service is a new retailer approach, and it is changing the way retailers operate their businesses. 3-BRANDS, a retail tech start up offering a full stack offline retail platform covering the complete lifecycle of a brick-and-mortar store.
It is widely accepted retail model in the United States of America, Some US based DTC brands that have adopted the retail-as-a-service model are Netgear, Koio, Mint and Rose, and Faherty Brand.
The customer path-to-purchase is no longer a straight line. A purchase that is sparked by a social media post can be followed up with internet research on a desktop and completed on a tablet or in a brick-and-mortar store. Technology developments have made buyers hyper-connected and smart in their purchase decisions. Along with that, systems and data has brought ample opportunities for digital retailers to leverage their multi-channel and omnichannel marketing efforts.
O2O Marketing is a practice of offering specialized services to entice customers in the online environment for them to make physical in-store purchases. For example, initiating a standard digital marketing approach to target customers, and further including call-to-actions to drive foot traffic to brick-and-mortar stores.
With O2O marketing, digital retailers can reform marketing and engagement strategies based on user behaviour in-store and online. In simple terms, using online and offline data as a therapy for integrated marketing campaigns.
Implementing O2O Specialized Service
The purpose of O2O commerce is to improve the customer shopping experiences by offering value added service via joining online and offline channels to leverage brand offerings. A digital retailer can gain a significant competitive advantage with a comprehensive O2O Marketing approach, not only by improving the customer experience but also by using data insights to connect the dots between offline and online purchases. Using the right techniques, tools, and the methods outlined below, a true omnichannel O2O strategy is easily attainable.
Personalized shopping experience
One of the most desired service for both E-commerce and Brick-and-mortar retail, is the provision of personalized shopping experiences for the customers, including customized offers and tailored suggestions based on each customer’s location, requirement, and specific desires.
But how does personalization work?
Digital brands can collect and utilize customer data from their website or Point-of-Sales, followers on Facebook, Pinterest and Twitter to figure out product-promotional strategies, i.e. which products to promote to which customer, when to promote and through which channel. For example:
- Social media and marketing teams within a business, can track Pinterest pins to help identify trending products, and then promote those in their brick-and-mortar stores.
- Utilizing rewards and loyalty program data, sales employees, within a physical store can see customer preferences and purchase history to help create better shopping experiences.
Using smart offers, such as digital coupons, businesses can invite customers to visit their brick-and-mortar store to use secure dynamic codes for their offline purchases. These smart coupons can be dynamically generated for each customer profile which enables data collection and tracking of customer behaviour for their entire path-to-purchase. Dynamic offer values can be distributed across a variety of channels such as email, text, social media, and more. The release of coupons or vouchers is a way to stimulate customers to use your service another time.
For example: ‘Jack’ receives a smart coupon after his first purchase either from web store or offline store, and it is a dynamics coupon generated for ‘Jack’ and it can be redeemed in offline stores on his next purchases. Smart Coupon increases Jack’s possibility to visit offline store and thereby creating a brand touchpoint for the customer. Besides that, smart coupons add value to the data gathering and analytics.
Web conversion is low, and it is only getting lower. Fortunately, marketers can employ tactics like offline retargeting to bring customers back who have expressed interest in a product or service online. Offline retargeting allows marketers to send direct mail promotions to website visitors using anonymized engagement data and measuring campaign ROI (Return of Investment).
A smart offer made offline, after an online interaction, can reinforce branding, increase sales, make retargeting more precise, and create new opportunities for data gathering and analytics.
Extending Click and Collect
The phrase “buy-online-pickup-in-store” and the convenience and edge of click-and-collect and has become one of the retail industry’s biggest trends in last few years. Click-and-collect is a fulfilment option that provides an instant gratification for customers, bringing them to offline stores providing businesses the opportunity to entice customers to purchase other products.
While click-and-collect is undoubtedly convenient for some, it is not comfortable for others because store location could be densely populated or driving to the store, navigating traffic, and finding a parking spot is a cumbersome task. Under those circumstances, utilising the online benefits, and offering same day delivery from your physical store could be an alternative to click and collect.
Dunzo a delivery service company, available in metro cities across India, helps get your products to your customers faster than ever, often in under an hour.
Returns and replacements.
Products purchased online could be returned at the physical store with return requests placed online and vice versa — a perfect synchrony of Online and Offline, complimenting each other.
Brand engagement and Trust
The physical presence of sales executives, customer-seller interaction & customer-product engagement through marketing content helps building brand trust. Lenskart, as an example, expanded its operation to offline channels with its franchise lead approach to create 500+ store in 120 cities with 1M in revenue from each store annually.
Physical presence translates to customers becoming likely to buy more and for a higher value, when compared to buying online. For example, Zivame ‘s offline expansion has accelerated the conversion rate two times higher than online sales with the average order value being at least 1.2 times higher.
Touch and Feel experience
A physical store creates an opportunity for customers to interact with your product and brand in a way that is not possible online. Since millennials cherish experiences in the highest regard, creating an immersive brand experience is key to brand expansion. Urban Ladder’s reasoning behind opening physical stores was to provide customers a full sense about their products, where a survey validated that 45% of the customers feel that experiencing the product offline validated the price point of the offering.
An example on how O2O model adds brand credibility. Allbirds, DTC brand eschews both online discounts and traditional retailing by creating its own flagship stores and mainstream outlets. Their Offline channel is the main source of revenue across other channels. By leveraging O2O commerce, they bring customers to their offline stores, thus reducing their distribution overheads.
Allbirds founder Joey Zwillinger says “If we went online and marketplace, we would sell more shoes, but we would get into discounting all the time. We do not want to do that. It would commoditize a product we think is special. One of the things that has been a key part of this journey has been saying no to a lot of things.”
The role of technology and multi-store operations has become pivotal than ever when it comes to fulfilling Online-to-Offline transition. 3-brands is one among the niche names when it comes to delivering end-to-end retail platform starting from real estate leasing, setting up store infrastructure, hiring and training staff, store management, and offering cutting edge technology to online retailers looking to expand into an offline profile.
When it comes to O2O Architecture, Integration platform is the primary component for web platforms such as Shopify, Magento, Woo Commerce, Big Commerce, Amazon and Flipkart to synchronize with in-store point-of-sale (POS) for its brick-and-mortar operations.
O2O Key Takeaways
- Online-to-offline (O2O) commerce is a business model that draws potential customers from online channels to make purchases in physical stores.
- Value added services that O2O commerce companies may employ include in-store pick-up of items purchased online, allowing items purchased online to be returned at a physical store, and allowing customers to place orders online while at a physical store.
- If companies like Amazon and Alibaba consider O2O commerce to be the next step in their ecommerce development, you can be sure that it will be good for the development of your business as well.
- Online-to-Offline commerce expansion can be straightforward and easier to develop and improve over the time, with a proper plan.
At 3-brands, we help E-Retailers and online brands expand into physical retail store with a low risk and cost-effective approach. Are you interested in getting more details about this through a free consultation with our experts?
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