Online or Offline? Thinking through the sales channels
So you are just about to start up a new retail venture, but you aren’t too sure about switch format to choose.
Should you go all-in on e-commerce or stick with the traditional offline playbook?
Both online and offline channels are just the delivery mechanism to deliver merchandise and services to the end customer.
There are several channels options for the average retailer to choose from. Several non-store shopping channels include television home shopping, direct shopping, automated retailing and of course, the internet or e-commerce.
Brick & Mortar
1. Risk Reduction for shoppers
Being able to perceive the product in front of you physically can be quite important to shoppers. Perhaps there is a preference for a specific shade of blue or maybe a distaste for a type of fabric. Regardless, the physical evaluation of merchandise severely reduces the likelihood of an unsatisfactory purchase.
2. Immediate Gratification
Even with one-day delivery, there are some merchandises that customers want to get immediately. Whether it is the new Apple model or grocery ingredients for dinner, getting these goods immediately is essential to these shoppers.
3. Entertainment & Social Experience
Shopping malls play a massive role in this. The specific selection of stores and activities available are curated to ensure that shoppers can be fully satisfied as they wander around with their friends.
4. Credit Card Payment Method
This is a significant cost advantage for offline retailers. Offline retailers transact under the category of “card present’ which has a generally lower fraudulent rate and thus a lower transaction fee.
1. Immediate Information
Given the format of shopping, shoppers can readily search for more information about a particular product’s quality or the retailer’s credibility before making the purchase. Offline stores tend to limited by the number of sales associate or shelf signage space.
2. Broader Assortment Choices
Without the constraint of floor space, online merchants have the advantage of carrying a much higher number of SKUs.
3. Global Distribution Network (not always)
Traditionally retailers were limited by the number of stores they could open within a particular district. With rising rental cost, this strategy has its’ limits. Fortunately for the online retailers, they are not a constraint. Depending on how their delivery network was set-up, their operations can be global from the start.
4. Available 24/7
Although some offline stores offer a 24/7 format, there is a relatively higher cost of doing so. For online players, this advantage is a birthright. Even in the wee hours of the mornings, shoppers who might need something can browse through the catalogue and have the items delivered the next day.
A Trend Towards Personal Touch~
With greater investments into better sales training and AI recommendation engines, both channels have become well adapted to cater to their shoppers. Naturally, there is a scale advantage for online merchants however that might take a while to get set up. Human recommendations are still much more dynamic and personal as most retailers don’t have enough historical data to train the machine learning model.
Considerations in a Multichannel Strategy
Retailers that are considering adopting an omni-channel strategy have to run through several vital considerations before deciding on the degree to which they integrate. Should it be a complete copy or pursue a watered down strategy?
Although shoppers expect pricing consistencies, the competitive pressures in the different channels may not allow you to do so. It is not uncommon for offline retailers to price merchandise based on the local competition within a certain radius.
We see a debate between having a fully integrated of centralised customer databases versus managing each channel separately. The data engineers will have to manage the technical complexity of this project which might mean finding ways to integrate newer online analytics software with outdated legacy systems.
Given the limitation of floor space, it would be more efficient to allocate room for only the more popular merchandise but this is tricky because some products tend to be bought together and shoppers don’t want to make half a purchase at the store and wait for delivery for the other half.
Another consideration is placing products that have important physical attributes in the offline stores. Examples include perfume and ice cream where the smell and taste have a huge impact on the final purchase decision.
If you have any feedback or questions about this post, we would love to hear from you.