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  1. In Perspective: Off the online grid

In Perspective: Off the online grid

In an increasingly digitised retail environment, whether you look at China or the US, the fundamental driver is that the consumer who transacts across both online and offline channels is far more valuable than a consumer who uses only one channel.

Updated: February 9, 2016 11:25 AM
In an increasingly digitised retail environment, whether you look at China or the US, the fundamental driver is that the consumer who transacts across both online and offline channels is far more valuable than a consumer who uses only one channel.

In an increasingly digitised retail environment, whether you look at China or the US, the fundamental driver is that the consumer who transacts across both online and offline channels is far more valuable than a consumer who uses only one channel.

In an increasingly digitised retail environment, whether you look at China or the US, the fundamental driver is that the consumer who transacts across both online and offline channels is far more valuable than a consumer who uses only one channel.

For example, Bain research in the US shows that for certain categories like apparel, an online-only consumer spends 100, an offline-only consumer spends 240, and consumer who browses online but buys offline spends 350 and those who buy across both channels spend as much as 540 (all indexed spends). In fact, as consumers start using both online and offline channels for browsing, price comparisons and transactions, they tend to buy more frequently and/or buy more per transaction.

Online players going offline do so for different objectives and configure their offline offers accordingly. For example, Bonobos’ Guideshops allow consumers to see and try on apparel but all transactions are completed online.

The focus is as much on attracting new, typically older consumers as it is on driving loyalty with existing consumers. Whereas Amazon’s offline bookstore both creates a new browsing experience and allows transactions.

The online-to-offline phenomenon would apply in different contexts. In the US or in China, this comes into play for categories such as jewellery or eyewear or apparel that need some kind of touch-and-feel experience and have an element of trial involved. You could argue that perhaps Amazon doesn’t need a bookstore, but the counter is that they are not worried so much about the transaction as about creating a new experience. What the brick-and-mortar store is going to be used for is at the discretion of the etailer. Yes, you could walk into a store with five options in mind. But once you’re in, you’re going to see other options. The store becomes a way to present a brand through its collection rather than having the consumer making a choice on his or her own. The brand, through the store, gets the option of guiding the consumer’s choices.

However, there is a disadvantage inherent in physical retailing. It necessarily limits the number of items that can be displayed. A brand can have, for example, 70,000 items, but the store can only carry 2,000 odd SKUs. You can’t get away from that disadvantage and it leads back to the question of what the objective is — sales or experience or trial? Ideally, you’d want to have an SKU of every kind from a warehouse located nearby so that you could offer trials. You’d still have to make a sales channel, look at local dynamics, and anticipate for the kind of consumer you expect will walk in — similar to what any brick-and-mortar store would do. This is only a disadvantage from a sales perspective, but not so if it’s meant for trials. Our clear sense is that consumers who look at both digital and physical channels for information and transaction are more valuable. Such consumers have a higher lifetime value.

Joydeep Bhattacharya

The author is partner and head, consumer products and retail practices, Bain India

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