O2O (Online to Offline) Commerce’s Multi-Billion Dollar Opportunity

O2O (Online to Offline) Commerce’s Multi-Billion Dollar Opportunity

Online to offline – o2o commerce – is big business.

Last month, when Amazon acquired Whole Foods for a staggering $13.7 billion, merchants around the globe took note and started discussing the o2o commerce opportunity in the US and abroad. Combine this with the fact that more than 80% of US retail sales will still happen inside physical stores in 2020, and you’d be forgiven for thinking that online sales should be the sole focus of your ecommerce business.

While the market for online commerce is undoubtedly lucrative, the truth is that it’s just the tip of the commerce iceberg … an 8.3% tip to be precise.

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Even though more consumers are getting used to buying things like books, shoes and electronics online, the majority of spending still takes place in brick and mortar outlets. In fact, apart from Amazon, all of the top ten retailers in the U.S. are old-school, brick-and-mortar stores.

The Case for O2O Commerce

Online-to-offline (o2o) commerce is a business strategy designed to bring online customers to brick and mortar stores. It uses online marketing and advertising methods to identify customers, create awareness of products and services, and ultimately entice the customer to visit a physical store to make a purchase.

 Back in 2010, a TechCrunch article first highlighted the potential for o2o commerce by posing a simple question:

“Your average ecommerce shopper spends about $1,000 per year. Let’s say your average American earns about $40,000 per year. What happens to the other $39,000?”

In other words, for every $1 your customer is spending online, they are spending $39 dollars offline.

Savvy ecommerce retailers are tapping into this ripe offline market by bridging the gap between traditional online and offline commerce. In particular, shifting the discovery and payment of offline retail to online would help create an O2O commerce model that had the potential to completely dwarf traditional (stuff in a box) ecommerce.

And considering that an estimated 81% of shoppers conduct online research before making big purchases, being able to channel even a small percentage of these customers straight from their online research to your offline store would represent a massive potential for sales. This potential has come to be known as the “Trillion Dollar Opportunity,” and has since been covered in other media outlets such as Inc. and Forbes.

Did you know the world’s fastest growing corporations practice o2o commerce?

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Image via SlideShare

O2O commerce lets these companies treat online and offline channels as complementary rather than competitive, with services such as in-store pickup of products purchased online, online purchase of products while at a physical store, and allowing products purchased online to be returned to a physical store. Deep discounts to gain market share and retain customers are also common in online-to-offline markets. In China, for instance, discounts are offered on o2o laundry, cab and food delivery services, where consumers redeem coupons/discounts digitally and use them to get offline service at a reduced price.

Let’s take a look at some of the trends in O2O commerce and how you can start getting a piece of the trillion dollar pie.

Major Ecommerce Companies Are Adopting the O2O Commerce Model

According to Brendan Witcher, principal analyst at Forrester, the online-only shopping experience is still lacking for customers which is forcing the push into O2O.

Brendan Witcher“Many customers want to have an experience that allows them to hold and touch and in some cases, try on, the products. Many shoppers still relish the experience of walking into a store and walking out with merchandise.”

Even young people prefer the physical shopping experience. A global survey by the CBRE Group Inc. has shown that 70% of millennials prefer shopping in stores, which is surprising considering that their demographic spends an average of 7.5 hours a day online.

A few years ago, smart ecommerce retailers started to notice of this gap in the online shopping experience.

Starting in 2011 with men’s fashion retailer Bonobos, a number of highly successful online startups such as Warby ParkerHarry’s and Modcloth opened retail storefronts that cater to this market. They allow customers to view and try on products in person, while still distributing all inventory directly from their warehouses.

Despite having success in the online-only market, Bonobos founder Andy Dunn identified the “online vs. offline conundrum” of online shoppers not being able to try on clothes as an impediment to company growth. After repeated requests from customers and a successful trial in their New York office, Bonobos opened the Guide Shop, a place where customers could try on their wares, place an order online, and have their purchased goods delivered the very next day. The first shop was so successful that Bonobos currently operates over 20 storefronts, with plans to expand to over 100 by 2020.

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Image via Men’s Flair

Warby Parker initially found success by offering cheap and fashionable eyewear in a direct-to-consumer commerce model. They opened their first physical storefront in 2013, and within a year had eight stores that were amongst the most profitable in the country when comparing sales to store size. Warby Parker currently operates nearly 40 stores, and co-founder Neil Blumenthal expects to expand to hundreds or even thousands of stores.

Ecommerce players outside the US have also made great strides to transition into o2o commerce.

Alibaba has attempted to take advantage of the world’s biggest ecommerce market by investing as much as $8 billion in retail stores in China. The company believes that a foothold in traditional retail is key to future growth and has developed an O2O plan for “new retail”, which involves using technology to upgrade China’s retail sector. Using customer data such as brand membership information, purchasing history and store visiting habits, Alibaba hopes to be able to adjust and personalize product offerings, create tailored marketing campaigns and streamline supply chains.

How Personalization Makes For a Better Shopping Experience

As shoppers become more tech savvy, they expect retailers to provide better shopping experiences that integrates available technology. One of the most desired services is a personalized shopping experience, which includes customized offers and tailored suggestions based on each consumers’ specific desires and their location. Many retailers have acknowledged their demand, and are starting to use customer data gathered online to improve their offline shopping experience.

Nordstrom, one of America’s largest fashion retailers, has introduced data-driven, personalized experiences at their retail stores. The company tracks, follows and analyzes every move their online customers make to decide what products to promote to which customers, when to promote them, and via what channel. Their marketing team tracks Pinterest pins to help identify trending products, then promotes them in their brick and mortar stores. One of their unique personalization techniques is an opt-in app that pushes the online profile of people who enter their stores to the salespeople in those stores. Salespeople can see the customer’s profiles and purchase history to help create a better shopping experience for the customer.

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Image via Retail Details

Personalized shopping can also address one of the biggest problems with O2O commerce - how to track offline conversions influenced by online marketing. Without knowing how your online advertising is affecting offline sales, it’s almost impossible to make decisions about optimizing and scaling campaigns. Click-and-collect, online coupons and customer surveys are all easy ways to track O2O customer movement as they provide a direct path from the online space to the physical store.

Another great example of O2O tracking is Shopify’s Shopkey keyboard extension app, which lets you quickly add links to your products in messaging apps, on social media, and elsewhere online. When customers message you with questions like “Can you recommend a great product for …?”, or “Do you sell this product in other colors?” you can make personalized recommendations with product links taken directly from your catalog.

The personalized interaction helps keep customers happy, and the embedded codes allow you to track sales from your Shopify dashboard. If your customer decides to use click-and-collect to purchase the product, you can track the offline sale directly back to the online interaction. If they choose to visit your physical store, they can show the links to shop staff who can help them find the product, then record the transaction as an online-to-offline sale.

Going Beyond Click-And-Collect Shopping

The convenience of click-and-collect shopping has made it one of the retail industry’s biggest trends in last few years. In early 2016, it was reported that over half of retailers were offering a click-and-collect service, and 72% of consumers were making use of it.

Being able to order online and pick up an item in-store is not only convenient, it helps fulfill our need for instant gratification. In a world where the latest movies are available on demand, and personal taxis can be called to our location within minutes, the ability to get things when we want them is now considered the norm. For retailers, click-and-collect is a great chance to bring online customers to offline stores. Once you have the customers in store, you have the opportunity to entice them to purchase other products.

However, it’s important for retailers to realize that simply offering click-and-collect is no longer enough to satisfy consumer expectations. Retailers now need to offer both choice and price competitiveness in combination with click-and-collect for the best customer experience.

While click-and-collect is undoubtedly convenient for some shoppers, it’s not always the most popular method of getting products quickly. For consumers located in densely populated areas, driving to the store, navigating traffic, finding a parking spot, and loading up cumbersome products into the car can be an unattractive proposition, despite the benefits of instant gratification. Conversely, consumers located in sparsely populated areas might find the time and fuel costs associated with traveling to a retail location outweigh the benefits of click-and-collect shopping.

For such customers, it’s important to offer an alternative service. McKinsey’s research found that 23 percent of consumers are willing to pay more for same day delivery. In fact, the perceived reliability and timeliness of delivery service is a major decision-making factor for customers and therefore directly affects a company’s success in o2o commerce.

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Image via McKinsey

While Amazon’s drone delivery service offers the promise of rapid 30 minute delivery times, the service is still in a developmental phase. Fortunately, Shopify Plus customers have a number of same day delivery options that easily integrate with their online store.

Postmates is a same-day delivery service that is available in over 200 cities across the United States and helps get your products to your customers faster than ever, often in under an hour. Once you have received an order notification, all you have to do is pack the product and send a pick-up request to Postmates. A courier will come to your location, pick up the product, and deliver it to the customer. The integration between Postmates and Shopify allows you to track the order from pick-up to delivery, giving both you and your customer peace of mind.

UberRUSH is a similar same-day delivery service that is currently available in New York, Chicago and San Francisco. UberRush uses the Uber driver network to provide on-demand product delivery for businesses of all sizes. Just like Postmates, you can easily integrate the UberRUSH app into your Shopify store, and once an order notification has arrived, a nearby driver will be alerted and will come and collect the product for delivery.

The biggest advantage of these two services is that they offer extra options to the customer at no extra charge to the retailer. The extra costs are all displayed at the time of purchase, and are the responsibility of the customer. If they want to pay a little extra for same-day delivery, that’s their choice. If they’d prefer to satisfy their need for instant gratification by using click-and-collect, they can choose that option instead. It’s up to the customer.

Final Thoughts

There are numerous opportunities for retailers to combine online and offline commerce into a complementary shopping experience that keeps customers satisfied and increases profits. And if companies like Amazon and Alibaba consider O2O commerce to be the next step in their ecommerce development, you can be fairly sure that it will be good for the development of your business as well.

About the Author

Dan Virgillito is a storytelling specialist, blogger and writer who helps digital startups get more engagement and business through online content.