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Online to offline: Tracking the Dynamics of O2O in India

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Online to offline retail has gained considerable traction in the past couple of years and today we are witnessing an upsurge of online brands, especially the D2C brands vying for offline space either through their own stores or through formats ranging from kiosks to shop-in-shops

By Nehal Gautam and Zainab S. Kazi

The dynamics of retail revolution over the last two years have kept retailers on their toes thus forcing them to adapt to the ever changing demands of their patrons. It all began from the emergence of modern retail thus compelling traditional mom and pop stores to buckle up and adopt modern retail measures. Then we witnessed the onset of online retail which pushed offline retailers to offer online shopping experience to their customers.

Gradually it led way to a lot many brands and entities to simply have online presence serving thousands of pincodes across India without the need to having a physical store. Though today the retail dynamics seems to have come a full circle with each of the format being required to having an all-round presence – both offline and online. As against the prediction of retail pundits, who were quick to point out the eventual phasing out of physical stores, what we are observing today is the bridging of gap between online and offline retail with the online players setting offline stores. And this trend is being observed across the globe, including India.

Tracking the dynamics

In the current retail scenario where developing an omni-channel identity is a must for brick-and-mortar retailers, the rationale for online retailers for adopting the reverse strategy (online-to-offline) holds equal relevance. Take for example America’s e-commerce giant, Amazon, who made headlines in the year 2015. After over two decades of existence as the online major, the company decided to blur the lines between online and offline world with its first-ever brick-and-mortar retail store in Seattle’s University Village in the US. For years, the retailer has threatened physical retailers on price because it didn’t have brick-and-mortar locations. But those offline stores offered something Amazon couldn’t: the instant gratification of owning an item the second it was purchased, as well as the five senses’ experience for customers. Just like Amazon, various e-tailers in India also took notice and a slew of pure-play e-tailing companies in India opened physical stores to either assist their online sales or to deliver a more real, ‘five- senses’ experience for customers. And now, these retailers are beginning to see significant contributions to revenue and bottom line from their physical stores.

A case in point here would be e-tailers like Pepperfry, Nykaa, Zivame, Lenskart etc. who have their stores at prime locations across the country including airports. Who would have predicted this reverse strategy to come true a few years ago when the fight between offline and online retail was at its peak? Each brand today – whether they begin their journey online or offline, eventually are seen working towards having their presence in both the online and offline space, both equally performing well for them.

The need for exploring the O2O space

Without confusing O2O as being on the same page as offering an omni-channel experience to their customers, online to offline aka O2O retail entails online retailers using their various marketing initiatives through digital and social media to bring customers to their physical store. The concept of O2O retail extends the opportunity for customers to visit the store for pick-up and at times even for returns. As shared in a foreword in a report titled Retail 4.0 India Story – by Technopak and Nasscomm, Debjani Ghosh, president, NASSCOM highlights that the next evolution of retail will be driven primarily by collaboration and tech-led convergence of online and offline retail formats with blurred boundaries of retail channels.

But then the question that comes to mind is what exactly drives online retailers to enter the offline space? Answering this, Ankur Bisen, senior vice-president – retail, Technopak shares, “This question refers to those brands that started online only. This implies limitation of online only approach for a retailing market like India. Brands recognized the virtues of offline presence that it enables brand visibility, creates customer connect, provides reach, instant gratification etc.” He further adds, “Online only” is a misnomer. Only marketplaces exists on pure online setting. For all other brands that started online only have now graduated to online plus offline. The journey is still nascent.” Bisen points out that online to offline is more gradual as compared to offline to online that has been more swift.

As pointed out in an article on shopify.com, at one point, retailers were concerned that because ecommerce stores sold online, they wouldn’t be able to compete on price and selection. Stores have high operating costs (employees, rent) and limited space, so they can’t offer a wide selection. But the truth is, 80%of shoppers will go to the store to buy when they have an item they need or want immediately. This drove retailers to treat physical and online channels as two different channels—complements, not competitors. The purpose of O2O commerce is to create awareness for products and services online, then visit the store to make a purchase. Techniques include home delivery, curbside pickup, and letting customers place orders through your online store to pick up in-store.

Tracking customer behaviour

Customer remains the queen irrespective of the format they choose to shop though there is a sharp difference in the way a customer shops online vs. online. This proves to be a challenge for the retailer who needs to adapt to this variation and devise his customer centric policies to suit both. The most striking differentiation in behaviour of an online vs. offline customer remains to do with the intent to shop. An offline customer under the positive influence of a courteous and smart sales staff will seldom leave the store without making a purchase but an online customer can easily be distracted to leave the shopping website hopping to another one in a jiffy.

Zaid Bhamla, director, Innovation and Digital Marketing, SSIZ International Ltd. rightly highlights that compared to online customers, offline customers provide feedback more quickly and proactively. This is due to the fact that offline customers can interact with the product or service directly and provide immediate feedback. Adding on to the research the customer undertakes and the role the different modes of interactions play, “Before making a purchase, both online and offline customers conduct research. Offline customers, on the other hand, may rely more on retailer and visual merchandising (VM) recommendations to make their final decision. Customer interaction with media differs greatly between offline and online media. Online customers are more digitally savvy and may engage with social media and online advertisements more frequently, whereas offline customers may rely on traditional media such as print and television.”

Elaborating on the behavioural difference being dominated by the presence of sales staff, Abhishek Kaushik, founder – MITRA points out that offline customers tend to prioritize personal interactions with sales associates and the tactile experience of physically examining and trying on products. They tend to be more loyal to their favourite stores and are willing to pay higher prices for the convenience and personalized service that they receive. Offline customers are also more likely to make impulse purchases and to return to stores for additional purchases, building long-term relationships with the stores and sales associates. Mitra further notes that the online customers prioritizes convenience and accessibility over personal interactions with sales associates. They are also more likely to abandon their shopping carts if the checkout process is too cumbersome or if there are unexpected costs such as shipping fees.

Another important aspect that has led a lot many etailers to enter the offline space is to offer their patrons the luxury of touching and feeling the product thus helping her decide on her final purchase. “When a customer interacts with a product offline, they can experience its look and feel first-hand. This tactile experience can be very influential in determining their purchase intent. If customers like holds true across categories. Where fashion retailers can have savvy staff advising the customer on the cuts and colours that would suit them, for other categories too the expertise and friendliness of the staff holds importance. For a niche category like agarbatti, where customers are more or less traditional in their outlook, the human interaction at the store matters. Arjun Ranga, managing director, Cycle Pure Agarbathi reveals, “The offline customers are more traditional and transactional. They seek value for money. They tend to do buy what they are comfortable with without experimenting too much or delving too much into company creds or the environmental impact of their choices. Their purchase decision tends to sway based on the retailer’s recommendation. The value of each purchase is generally small and the consumption is almost immediate. The fragrance preferences are traditional, devotional and functional. The approach tends to be short term.”

Not everyone who sees a product online makes an immediate purchase. A lot many customers still want to have a feel of the product before investing in it and this differentiation according to Paridhi Goel – Founder – Love Earth can be well encashed in the offline space. “The major factor that leads a customer to an offline store is the visibility of the brand on the internet. They might not buy the products online due to their sceptical views about them but subconsciously they know about the presence of the brand. They would buy after checking out the products offline,” shares Goel.

Where offline customers weigh their shopping decision on the presence of positive interaction with the staff while at the store, an online customer looks for user-friendly interface the online platform has to offer. Anchal Saini, chief executive officer, Flyrobe explains, “An online customer takes more time to research and from a decision, they value things like easy navigation, quick delivery, detailed product descriptions, and fast customer service.”

Another very important feature that brings out a difference in customers of online vs. offline retail would be the actual intent of their shopping. Online shopping more often than not in certain categories is not need based but more influenced by discounts and the story built around it. This may at times lead to customers then opting for either cancelling their order or returning it once the impulse of owing it subsides. Anuraag Gambhir- managing director, ShopClues is of the opinion that the ease of returns make an online customer behave differently than an offline customer. Elaborating on this, he shares, “Offline customers are generally more highly involved with their purchases. They research the products they want to buy in more detail than an online customer. Usually when purchasing offline, customers consider it as the final purchase (even though offline stores also offer exchange) because they do not want to spend the time and effort to come back to the store to return the product. When it comes to online purchases, due to the ease offered in returning products online, customers are quick to make the purchase and quick to return the product if they do not like it. This usually happens because online stores also offer full refund whereas offline stores usually offer only an exchange but not refunds. As a result, online stores become an easy choice for impulse purchases. In fact, at times, customers purchase 2-3 options for a product whereas the intention is only to keep one of them.”

And lastly, the pricing and discounts have their share of influence in adding to differentiation in the temperaments of an online vs. offline customer. As online customer is often referred to as a bargain hunter. Rajat Tuli, co-founder, Ustraa emphasises on this saying, “The online customer is a bargain hunter, they can sit in a single place, explore prices in 3-4 different sites and then buy from the cheapest. The offline customer builds a relationship with the store where they shop. They tend to be more loyal and more consistent shoppers.”

Devising the O2O strategy

Operating in an offline space is a different ball game altogether as compared to having an only online operation. Majority of the online players in the space have never had offline retail exposure and this expansion to offline space may seem very much daunting initially. As Saini aptly points out, “Do not jump into opening a physical business just because others are doing it. Before taking the plunge, take the time to assess the market need,  financial viability, and brand readiness.” One major challenge that online players face is taking control of costs that remain fixed in the offline space as compared to online operations. Gambhir explains, “Costs related to offline businesses like rent, physical infra usually have a longer fixed tenure. People dealing with online businesses are used to dynamically changing their fixed expenses – storage on cloud etc. and the same flexibility is not available offline.”

Offering a viable solution to the retailers looking at entering the offline space with limited funds, Bhamla advises to develop a staggered go-to-market (GTM) strategy. He elucidates, “Consider operational efficiencies that require adaptability to different regions of India.” Sharing his views on the trickiness of tracking down the ROI in the offline space, Bhamla further highlights, “In the offline space, it can be difficult to accurately attribute sales to specific marketing efforts. Offline sales may result from a combination of various marketing and advertising efforts, making it challenging to measure the ROI of each effort. Offline data may be incomplete or inaccurate, making it difficult to analyze and make informed decisions. This is particularly true for small businesses with limited resources for data collection and analysis. Offline businesses may not have access to the same level of customer data as online businesses, making it difficult to measure ROI.”

Operational strategies need a thorough thought through when it comes to operating a store. From rentals to logistics, each aspect has to be planned without any scope for error. Kaushik cautious the players to have a clear strategy in place, saying, “This strategy should outline your goals, target audience, messaging, and budget. His advice is to invest in experiential marketing which would help them stand tall against their competitors, “This could include pop-up shops, in-store events, or interactive displays.” Elaborating on the competition aspect, he makes an important point saying that having a successful stint online should no way give you an impression that offline too a similar acceptance can be guaranteed. “Just because you have built a successful online brand doesn’t mean you are immune to competition in the offline space. Do your research and make sure you are aware of the competitive landscape,” he adds.

Of distribution and data analysis

The power of distribution cannot be underplayed though with D2C catching up, in the online space, distribution shall not hold too much importance going forward. But in the offline space, the dependency on distributors does have a role to play hence the nuances of distribution have to be in place. As Tuli shares, “Make sure you have a proper sales team in place before you start operations in a region. Don’t think short-term, offline distribution
takes years to build. Don’t pile your distributor with excess inventory as it will eventually come back and make sure you do not over-incentivize as that brings short-term results but a lot of problems in the long run.” Experts unanimously point out that the data gathered online can help devise customer centric approach in the offline space. Gathering data offline and interpreting it is comparatively challenging. Popat advises to have an in-depth understanding of the target audience’s demographics, preferences, and buying behaviours.

He shares, “Analyse your online data to gather insights into your customer’s behaviours and use them to create personalized offline experiences.” In terms of technology deployment, Tully strongly suggests to have separate software for stock management for both the formats, “An offline stock management software has to be put in place when your online business forays into the world of offline. The same software that is used for online cannot handle the intricacies of an offline business.”

Of SKU display and technology play

Agrawal discusses on one of the most pressing challenge offline retail puts forth is that of not being able to display the entire assortment offline and this can be a challenge for brands that have a large product range or constantly changing product offerings. “To address this, it is important to invest in touchscreen displays to show product variants and educate customers about the brand,” she shares. She further elaborates on another challenge that retailers need to keep in mind is of not having the benefit of peer reviews when they shop in stores – online customers have the benefit of reading peer reviews while shopping. Hence, it is important to invest in in-store displays to show product reviews and ratings to help customers make informed decisions.

There is a certain amount of technological advantage that online players bring on the table when they enter the offline space. Where they may face roadblocks in operations that are specific to offline retail, the know- how of how best technology can be put to play can come to rescue. On the tech advantage that online players bring to the offline format, Goel shares, “The biggest tech advantage that has helped us is providing a strong customer
support service. Our customers can get in contact with us through mails, DMs or calls and they get an instant response and resolutions. This has made them believe in us and our brand even more.

To conclude, inspite of all the challenges, it is safe to conclude that having an offline presence is imperative. As Tuli rightly puts it, “An offline business is more people-centric and needs patience to build. The upside is that it is more stable, consistent, and difficult to dislodge once all the wheels are set in motion.”

 

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