O2O (Online to Offline)

O2O merging of online and offline in the retail world (Part 1)


In this part, we will explore case studies and reasons behind why online and offline retailers are aiming to the territory of each other as well as how O2O is growing along with that trend.

In the recent years, the line between offline & online is blurred in the retail list are expanded, moving toward to omni-channel experience. Online business is now complimentary instead of rivalry source to traditional stores.

Online business or e-commerce achieved impressive growth recently. This partly leads to a decline in the number of retail stores in US & UK. However, traditional retail still takes a lion shares of total sales. Till 2020, 80% of the retail total sales are still from traditional sources. This is not a new prediction, in 2000, Techcrunch had a sharp statement:

“Your average e-commerce 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?”

Statistics from CBinsights in 2017 further reinforce that statement: the percentage of offline sales in the United States and China is 91% & 83%, respectively.

Online vs offline sales in U.S & China
Online vs offline sales in U.S & China (Source: CBInsights)

So why does the traditional retail channel still play an important role?

Not only in the US & UK, the same story happened in China. Let’s start with an event in 2012 in China, where traditional retail sales also account for a large share of total sales. Two outstanding president, one is Jack Ma, chairman of Alibaba and the other is Wang Jianlin, chairman of Dalian Wanda Group, China’s largest real estate group (owns a myriad of shopping malls. Wang Jianlin was China’s richest billionaire at the time) took a bet on TV. Wang believed that traditional stores will hardly be replaced by the online force. Wang Jianlin bets 100 million yuan (around $16 million) to Jack Ma that in ten years online consumption still accounts for less than half of the entire retail industry.

Wang Jianlin and Jack Ma
Wang Jianlin and Jack Ma (Source: Business Insider)

To date, Wang’s bet is growing to be true. While the market share of offline retail has been claimed by the online retail (with impressive growth rates in recent years), traditional sales still have a solid ground. Traditional stores are still the important part of China:

  • This growth rate is still increasing but at the rate just half of the rate two years ago: e-commerce transactions increased only 19% in 2017, compared to 37% in 2015 (iResearch). If Alibaba wants to maintain good growth as it has been forced to find a way to take advantage of the traditional retail stores.
  • In China, 85% of consumers still want to shop at traditional stores. China has also surpassed the United States as the world’s largest retail market, with sales of $ 4.9 trillion. (According to eMarketer).
  • The traditional retail industry in China remains relatively large, as the market is relatively fragmented compared to Western countries (the largest market share is only 27% compared to 78% in the UK). There are about 6 million retail stores, with a cumulative turnover of about 10 billion yuan (about 1.6 trillion gross revenue).
Comparison of sales between traditional and online retailers in China
Comparison of sales between traditional and online retailers in China. (source: iResearch)

Second, traditional retail stores are not just places for shopping but are increasingly a place for consumers to experience (according to Taubman Asia). After all, we still like community activities, interactions. Supermarkets or shopping malls are places where people choose not only as shopping places but also as places for people to socialize, enjoy life and relieve stress. In addition to the social experience, it is clear that the psychology of “seeing and touching” is still an important factor for the consumer. They visit the mall, retail stores to get advice from the sellers & consultants. In addition, customers can change to the other item in shops which cannot be fulfilled well in online world.

Consumption trends in China

Consumers in China are intested in “showrooming”: Showrooming is when a shopper visits a store to check out a product but then purchases the product online from home. The opposite of “showrooming” – Webrooming, which is when consumers research online and then buy at the the shop. In any case, the traditional retail channel also plays an important role.

The consumer answered “Do you check the product before deciding to buy online?” in the PwC report
The consumer answered “Do you check the product before deciding to buy online?” in the PwC report

Established role of traditional stores helps O2O model to thrive. O2O trends in recent years have grown rapidly and is taking a role as a lubricant between real and virtual worlds. This trend is particularly evident in China as the share of the smartphone is growing, thriving payment infrastructure with electronic wallets, QR codes, and the consumption rate is growing.

O2O model

What is O2O (Online to Offline)? The O2O is a retail business model that pulls leads from online channels to traditional stores, creating a seamless online shopping experience before, after, and during the purchase. O2O model could be on-demand model with names such as Uber, Tablenow, Airbnb in the United States; Didi, Meituan-Dianping, Ele.me in China; Grab, Gojek in Southeast Asia, in wide range of online booking such as car booking, hotel booking, airline ticket booking, apartment rental, etc. Also, there is a Daily Deal – discount voucher with Groupon.
Highlights of the O2O model in addition to marketing techniques to attract customers to the store in the lifetime of the techniques are applications such as: picking up products in store (with the product ordered online); Order online at the store, allowing goods purchased online to be redeemed at the store. Ass for the store, it is equipped with Wifi, loyalty reward system, beacon technology to serve customers better.

O2O model
O2O model

O2O will be implemented with a clear goal: The online channel is responsible for creating clear awareness, creating top of mind of the customer about the product/service, thus enabling prospective customers to find the information they need to lead them to the store to purchase. The offline channel will be the place to provide the full experience, the most satisfying part for customers. The customer search process will be handled efficiently by O2O online, by navigating through stores, and vice versa by using technology that will make the customer experience “smoother”.

This model from Online to offline also develops from the direction from Offline to Online. According to PwC, the O2O model has also evolved into an omni-channel model. The omni-channel model covers wider areas than O2O, including marketing, sales, customer service and fulfillment. The omni-channel strategy helps improve the operational efficiencies, customer experience, and profit. In China, most of the stores have turned the model into a small fulfillment center.

As such, O2O acts as a gateway between the virtual and real world, playing an important role in retail innovation. With this tremendous potential, the 3 BATs (Baidu-Alibaba-Tencent) in China have invested enormous amounts of money into startups operating in the O2O sector, creating a huge bridge between the real and virtual world.

In the second part, examples of the big brands like Amazon, Walmart, Alibaba will somehow clarify this trend.

From Tech FPT

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