In the last two decades, online shopping has transformed from an anomaly to a powerhouse in the retail industry. With platforms like Amazon and Wayfair, customers can quickly and effortlessly purchase the items they need and have them delivered to their doorstep within days.
However, online shopping does have its drawbacks. Retailers face limitations in maximizing revenue from online shoppers, as they typically have specific purchases in mind and are less likely to browse around like they would in a store. Moreover, the experiential aspects of in-person shopping are absent in the online world.
This is why businesses are striving to merge the online and offline shopping experience, giving rise to a new concept: online-to-offline commerce.
What is Online-to-Offline (O2O) Commerce?
Online-to-offline (O2O) commerce is a strategic approach that aims to direct potential online customers toward in-person purchases at physical stores. This method involves redirecting individuals from online platforms to brick-and-mortar locations. Additionally, O2O strives to ensure a seamless digital experience throughout the purchasing process, from pre-purchase to post-purchase.
It’s crucial to differentiate O2O from an omnichannel strategy. While omnichannel involves engaging with customers through various online and offline platforms, O2O focuses specifically on converting online visitors into physical shoppers by:
- Providing options like in-store pick-up for online purchases
- Enabling on-site purchases at physical stores
- Allowing returns of online orders at the retailer’s location
Here’s our guide to omnichannel strategy for everyone just getting started with this approach.
Given that 87% of shoppers conduct online research before making purchases, directing even a small percentage of their research toward the ecommerce store could result in substantial revenue potential.
O2O Market Size & Opportunities
O2O commerce presents an opportunity to tap into both the ecommerce and retail markets simultaneously. Instead of traditional retailers targeting a limited local audience, they can now engage with the vast pool of 2.14 billion digital buyers worldwide. In fact, there are 80 million more digital buyers in 2023 than the previous year — a 3.1% increase YOY.
Studies indicate that retail sales will reach $5.94 trillion by 2024. Although in 2021, US consumers divided their shopping activities almost equally between online and offline channels, ecommerce is poised to dominate the overall retail landscape.
A little over a decade ago, ecommerce accounted for a mere 5.1% of total US retail sales. Currently, it holds a substantial 21.3% share.
In 2020, US consumers spent a staggering $861 billion online, marking a 44% increase from the previous year. The impact of the COVID-19 pandemic undoubtedly accelerated this remarkable growth.
How Does the O2O Model Work?
Initially, retailers were concerned that ecommerce stores operating online would have an edge in terms of pricing and product range. Physical stores have high operating costs, limiting their ability to offer a vast selection.
However, statistics show that 80% of shoppers prefer to visit a physical store for immediate needs or purchases. This insight drove retailers to treat their physical and online channels as separate but complementary channels, not competitors.
The purpose of O2O commerce lies in creating online awareness about products and services, ultimately driving customers to the store for their purchases.
Benefits of O2O Approach
Let’s explore some of the major benefits of the O2O ecommerce business model and understand why it has gained popularity in recent years.
O2O commerce takes personalization to unprecedented heights. By leveraging the huge volumes of data gathered from online interactions, it offers personalized product recommendations, exclusive discounts, and promotions within physical stores.
This precision-targeted approach amplifies customer satisfaction and significantly increases the probability of successful sales.
For example, how does ecommerce giant Amazon get its personalization right? It uses identity graph systems to determine user preferences and deliver spot-on recommendations. It’s the very mechanism that allows Netflix to learn your preferences accurately.
Enhanced Customer Experience
Google reports that 61% of shoppers prefer to shop with brands with a physical presence.
The reason? It significantly enhances the overall customer experience. When a person steps into a store, they have the opportunity to engage with representatives and view the merchandise in person.
To further enrich this experience, stores should integrate online and physical strategies where shoppers can access product information and use mobile apps to redeem loyalty points.
Related Article: Bridging the Gap: Integrating Online and Offline Retail in the Digital Age
Brand Recognition & Revenue Growth
These days, shopping journeys are far from straightforward. Shoppers are in a constant browsing mode—especially when they’re online.
For retailers to effectively reach them at those points, an O2O commerce strategy is crucial. It directs potential shoppers from various online touchpoints towards the brick-and-mortar store. For example, research indicates that businesses adopting an omnichannel strategy achieve a 91% YOY customer retention rate compared to those that don’t.
Logistics Cost Savings
As businesses scale, ecommerce logistics tends to grow more complex.
However, an O2O commerce strategy — particularly the buy online, pick-up in-store (BOPIS) model — offers businesses a means to streamline logistical operations. Retailers can effectively trim down operational costs by regionalizing their inventory and allocating a portion of their store space for storing products sold online.
This strategic move not only reduces the dependence on third-party logistics (3PL) partners but also enables retailers to provide swift same- or next-day pick-up options for customers, given that the products are already in-store.
Local Pick-Up & Same-Day Delivery
Click-and-collect shopping has become a major trend in retail due to its convenience.
While BOPIS is convenient for some, it may not always be the quickest or most popular option. For urban customers, the hassle of driving, parking, and loading bulky items can outweigh the benefits. On the other hand, those in rural areas might find the time and fuel costs outweigh the convenience of the click-and-collect approach. How do you walk that line?
Research from McKinsey & Company shows that 23% of consumers are willing to pay extra for same-day delivery, highlighting the importance of timely and reliable delivery in a company’s success in O2O commerce.
Retailers can strike a balance by partnering with couriers or implementing self-service lockers for purchased items. They may also consider handling their own deliveries within a certain radius of a store.
Steps to Implement an O2O Strategy
If you’re considering implementing online-to-offline commerce for your business, here are actionable steps to follow:
Step 1: Identify Your Business Goals
Start by defining the objectives the company aims to achieve through its O2O commerce strategies. For businesses lacking an online presence, this may involve establishing a robust online platform to drive sales.
For brands already equipped with a website and digital presence, conduct a comprehensive audit and fine-tune the O2O sales process to enhance both online and in-person sales. Utilize metrics like key performance indicators (KPIs) to establish clear and measurable goals.
Step 2: Brainstorm Strategies
Work independently or as part of a team to enhance the Online-to-Offline (O2O) presence. Here are some brainstorming ideas to help you get started:
- Use performance analysis software to highlight challenges customers face during the purchasing process.
- Compare online and offline retail experiences to identify where they overlap and diverge.
- Conduct a comprehensive website audit to emphasize the O2O experience.
- Leverage connectivity platforms to establish a seamless connection between the brand’s online and physical retail stores.
- Try implementing a “buy online, pick-up in-store” process.
- Consider offering home delivery for select or all online and in-store items.
Leverage data, whenever possible, to make informed decisions about which strategies to prioritize and implement.
Step 3: Track the Results
Once you’ve selected the O2O strategies to put into action, use the original KPIs to measure their success. Observe any recurring patterns or shifts in consumer behavior and how these align with both online and in-person initiatives.
Use visualization software to track changes in sales patterns over time and share this information across the company’s teams, leadership, and departments, who can derive value from this insight.
Step 4: Iterate
Finally, leverage the insights gathered from the O2O data collection process to drive meaningful business decisions.
Remember the original goals when assessing and fine-tuning your O2O strategies. If you’ve successfully achieved your initial goals, consider setting new objectives. The SMART goal framework — Specific, Measurable, Attainable, Relevant, and Time-based — can be an effective tool. This approach ensures your goals are well-defined and align with your overall business strategy.
With the explosion of ecommerce retail, the concept of an O2O strategy offers brands a powerful tool to integrate into their business operations. It seamlessly merges the digital and physical worlds to increase engagement, boost conversion rates, and optimize average order value (AOV).
While implementing an O2O model may come with its set of challenges, aligning with the right ecommerce service provider can significantly streamline the process and help overcome any obstacles that may arise.
At TechBlocks, we recognize the complexities and opportunities this landscape offers retailers. Our team of experts has helped many brands significantly grow their businesses and generate revenues.
Don’t hesitate to schedule a call with TechBlocks today and start on your ecommerce journey!