Online retailers should think of clever ways to aggregate customers and deliveries rather than splitting them, David R Bell tells Masoom Gupte
In your article ‘What matters most in online retail’, you have said, “For internet retailers, the best market opportunities are with customers in locations where offline retail shopping is limited and costs (including sales tax) are high.” But isn’t there an immediate concern about distribution costs as the reach goes deeper in the country. How can online retailers deal with this dichotomy?
This audience (where offline is not as well developed) is the most receptive to e-commerce considering our need for e-commerce is lesser in Mumbai where you can go down to the Phoenix Mills mall, right? Even in other countries like China, this observation holds true that growth and demand for online retail comes from Tier-II and Tier-III cities. What needs to be figured out on the supply side is how you can deliver profitably into these cities, whether it is by charging for shipment or having different price points or simply choosing wisely what services can be given away free.
Consumers like to touch and feel the products they are buying. In one of your papers you’ve called this an ‘experience attribute’ and that uncertainty about it decreases the frequency of purchase or dollars spent. How can online retailers change this consumer mindset?
When Jeff Bezos started Amazon, the number one category that was selling in catalogues in 1994 was apparel. Instead he went to the 25th popular category in catalogues – books. He realised that books are the easiest to sell online as there are no surprises there.
There are three things that e-commerce players can do to address this experience attribute concern. One, they can remove this uncertainty by providing free two-way shipping. So if you want to buy a pair of shoes and want to know which size fits, let the consumer order three pairs and return the ones that don’t fit.
Two, use technological solutions. For instance, a consumer could upload a simile of her body and the clothes can be tried on this model. There should be some feedback on that basis as well to make the purchase choice easier. Three, have some offline footprint. Many US companies like Warby Parker and Bonobos that started as pure play online companies have partnered with retailers or got a section in a store focusing on their products.
You spoke of brands that started off as pure online players but who went offline, even if in a limited way. The corollary to that is offline players increasingly making an online play. Is it then less about an online-plus-offline presence, and more about offering an omni-channel retail experience?
Absolutely. In a few years time, people will see shopping as one seamless experience. There will not be this distinction between online and offline. While offline gives a sense of legitimacy to the business, online gives much broader access to customers. Both mediums have their strengths and weaknesses. Pure online players are going to realise that some offline presence is critical for their growth and offline guys will realise that there is a lot of untapped opportunity available online.
In the current retail environment though, offline trade is worried about showrooming (where consumers check products in stores but buy online for cheaper prices) as a growing trend. How real is the problem?
Showrooming is proving to be a tremendous problem in certain categories like consumer electronics. People go to shops that are known for their expertise, spend about half an hour getting a lowdown on which stereo to buy and then probably log on to cheapstereos.com and make the purchase. This is a nightmare for offline trade which provides a service in the market that someone just free rides and takes away. That’s why we’ve probably seen Circuit City go bankrupt, Best Buy is under tremendous pressure. I don’t think the problem has been figured out completely yet. But, people are thinking about using the store’s real estate creatively. There has been one move in the US. It’s called BOPS: Buy online, pick up in store. It is a little way in which retailers are fighting back. Such innovations are being experimented with.
When you look at online retail in developed markets and observe the space in the Indian market, are there innovations in terms of service or business model that stands out?
Provide insurance for the transaction and clean up the payment process. Next, minimise the two-way distribution, particularly in crowded cities. One of the innovations which we are seeing in the US is pertaining to the last mile distribution. Therefore, you see that all the deliveries in a particular area are sent to the local CVS Pharmacy (the largest pharmacy chain in the US) outlet that is open 24 hours, instead of individual deliveries being made. Think of clever ways to aggregate customers and deliveries rather than splitting them.
Is online retail unsuitable for products with higher price points?
I saw a presentation in February 2012 by the CEO of modaoperandi.com. She said that when the internet first started people thought it was about three things: standardisation, speed and low price. But, she said, it is exactly the opposite: really slow, really expensive and everything I sell is really exclusive. So she was selling $60,000 handbags, $10,000 dresses and taking four months to deliver them.
She recognised that even the fashion market at that very high end is broken. For example, when a fashion designer showcases his work, out of the 10 dresses displayed, the top two sell but the other eight don’t. But there may customers in another country who would probably have bought one of those eight dresses. Modaoperandi.com wanted to fix this ecosystem.
She said the internet is ultimately about access or experience, and not about standardisation, speed and prices.
* David Bell teaches marketing management in the Wharton MBA and MBA for Executives Programmes and empirical modelling in the PhD programme. He also teaches an elective course in digital marketing and e-commerce on both the Wharton, Philadelphia and Wharton, San Francisco campuses
* He specialises in the study of consumer shopping behaviour and his interest areas in research cover digital marketing, e-commerce and retail. Bell’s research has been published in several academic marketing journals. Till date he has published over 37 papers, such as What Matters Most in Internet Retailing (MIT Sloan Management Review), From Point-of-Purchase to Path-to-Purchase: How PreShopping Factors Drive Unplanned Buying, (Journal of Marketing) etc.
* Outside his academic career, Bell has advised and invested in e-commerce start-ups such as Bonobos.com, Diapers.com (which later got acquired by Amazon) and WarbyParker.com. He has even invested in an Indian social media marketing agency called, SocioSquare.
This post had first appeared on Business Standard and has been re-published here.