Does O2O Business Model Present an Opportunity for Traditional Retailers and Immediate Trading Partners Strike Back?

Does O2O Business Model Present an Opportunity for Traditional Retailers and Immediate Trading Partners Strike Back?

Abstract

Throughout its history, e-commerce has experienced varying rates of development. Online to Offline (O2O) business model is currently trending and has been adopted by most multinationals and large local firms. Traditional retailers that formerly succeeded with B2B or B2C models are developing new ways to boost their performance through innovation. Given the limited of O2O business impact, it is imperative to conduct a market research to highlight the influence of this technology on conventional organizations. The researcher, therefore, utilizes quantitative techniques to demonstrate the resultant opportunities that Chinese and US businesses gain in the long-run and the different ways they utilize such benefits to increase sales revenue. 

Background

O2O business model is not a totally new concept. In the United States alone, corporations like Restaurant.com, SpanFinder, and OpenTable have succeeded in the market by linking local offline businesses and online customers. The utilization of mobile internet and smartphones has grown over the past decade, thus resulting in the adoption of O2O by most traditional retailers, especially those that manage their assortment and brand image (Du and Tang, 2014).

The rapid development of retail channel prompts an increase in its importance. Consequently, traditional retailers demand position and presence within the online retail community. Initially, Groupon and other firms served as O2O market integrators. In fact, they presented a platform for physical retailers to promote their businesses and products online. It is true that the traditional retailers are evolving fast in the digital market. As a result, most of the market players develop O2O strategies to influence their existing offline generic availability.

Lately, online retailers in the United States, China, and EU are moving in the opposite direction through the improvement of the offline retail business environment. For example, Alibaba strategically invests in in-time retail to demonstrate its attention to fuse its offline assets with online capabilities and assets. In this way, the organization leverages and captures O2O space opportunities. On the other hand, Amazon’s Japan branch introduced Locker Service to enable customers to pick and return locker purchases. Undeniably, the role played by physical retail stores is still valuable and strong despite the development of a digital space. For that reason, the question is about how traditional retailers can build on O2O ecosystem for a sustained growth.

Theoretical Framework

There is a striking similarity between O2O and B2C, though differences exist as well. It is worth noting that O2O is a combination of local service experience advantages and e-commerce features. Furthermore, online-to-offline e-commerce gives the buyers a chance to purchase goods and pay for them online, unlike traditional retail services (Hsieh et al., 2014). After the firm packages goods as ordered, they deliver them to the buyer but in B2B or B2C, the customer visits the store for service.

            Customers benefit from O2O because the retail business services are provided comprehensively on websites and online platforms. Besides, they are easily accessible without charge, as long as the user authenticates their log-in information. The commodity prices for O2O shopping are relatively lower when compared to similar goods at physical stores.

Research Question

Does O2O business model present an opportunity for traditional retailers and immediate trading partners strike back?

A Business Model

A business demonstrates how a business entity captures, create, and deliver value to the customers. Good business models answer questions regarding the value of a buyer, how the organization makes its profits, and different strategies it can apply to boost its performance (Lei, 2013).

Research Methodology

Research Design

Research questions affect the design and outline of the study. A research design offers a plan to enable the researcher to answer questions clearly (Yin, 2014). In this study, the research design controls the study procedure since it outlines the direction.

China is one of the fastest growing economies hence the rate of adoption of trending business models and technologies is high. I studied Chinese firms like Alibaba and Aokang because they have already adopted O2O business models. In addition the US corporations such as Facebook, Amazon and Walmart are classic examples of traditional retailers that strike back on online-to-offline business opportunities (Ma, 2016). Other firms worth studying include Weselni, Omnichannel, and Canadian Ikea.

To obtain information regarding the study subjects, the researcher contacted mail interviews with their online customer service. The case companies complied with the request and provided beneficial information.

Research Strategy

Qualitative and Quantitative studies are two main types of research strategies. The qualitative research strategy provides theoretical information through a careful reflection of both objective and social reality (Creswell, 2013). Contrastingly, Qualitative research focuses on the behavioral study. It bears an interpretative approach to the aim. In fact, Qualitative research gathers information about objects in their natural setting as well as from a human perspective. Considering the topic of this study, I chose a qualitative strategy to meet the research goal. Mainly, I selected six Chinese organizations and three US business firms that have succeeded in the ‘Online-to-offline’ business environment. Moreover, I conducted a semi-structured interview with the organizations’ online representatives.

Data Collection

The researcher gathered secondary data from Google Books, online libraries, and company websites to study and analyze the case firms’ performance. Then, the research broadened as the researcher employed scientific journals to derive useful information. Furthermore, I applied the theoretical framework in building empirical data.

Trustworthiness and Research Ethics

I paid attention to ethics and trustworthiness by incorporating interviews to authenticate the answers to the research question. I respected the privacy of all participants by concealing their identities. In addition, I sought their permission prior to publishing the information as provided. I responsibly collected the data and analyzed it while observing highest moral standards to guarantee the credibility of this research.

Literary Analysis

Traditional Retailer Considerations

            In mature business environments, retailers succeed by customizing online strategies as per established or inherent physical retail strengths or traits. First, it is imperative to note that online resources and access drive traffic to physical stores. They attract and invite customers to visit traditional retail stores. In the year 2007, Walmart introduced the click-and-collect concept. The organization integrated the feature with Facebook in the year 2012 to post adverts and to access potential customers. Facebook users utilized Walmart’s digital shopping ping cart to collect all commodities ordered online at their convenience. A lack of a product from one online store implied that the customer can order it in a different store for shipment and delivery at a later date.

            In most cases, the customers that visited Walmart for product collection picked up additional products whose prices were lowered for promotional purposes. Eventually, the firm made significant profits through increased sales revenue. In China, South Korea, and other rapidly developing Asian economies, the usage and popularity of online mobile payment are growing remarkably. Bandara and Chen (2011) argue that the traditional retailers are introducing these methods of payment to retain their customers as well as to attract a new generation of tech-savvy smartphone users. According to Li and Mo (2015), Alibaba (through Alipay) collaborates with Aokang (one of the leaders in China’s shoe retail industry) to provide a mobile payment system in 4000 physical stores countrywide. If a customer opts to pay for goods and services using Alipay, he receives additional discounts. Besides, Aokang’s management recently announced that it pays less in service fee to Alipay in comparison to bank charges.

Additional Data Collections for Product Promotion

            Traditionally, retailers rely on market research techniques like customer shadowing to understand the shoppers’ behavioral pattern. However, most retailers are currently scouting for online data gathering channels to minimize research expenses and time spent. For instance, Gap monitors the online activity of its customers and site visitors to understand their desires. The firm gathers information on product views, commodities added to the shopping cart, customer profile, and likes. When such information is used alongside in-store data, the traditional retailers can make informed decisions on product mix and promotions. In turn, they will provide appropriate products to customers at physical retail stores.

Decision of Store Location

            When choosing store locations, business owners consider the competitiveness of the landscape and the level of demand. Today, traditional retailers can tap on customers’ online presence to track their activity for evaluation of store locations. In America, Petco (pet retailer) gathers online user data like IP address, order size, online availability, and frequency to make decisions on marketable pet species and their pricing. The firm has more than 1200 physical subsidiaries across Mexico, United States, and Puerto Rico. Therefore, the online sales data is a fundamental metric for opening new stores in South and Central America. In this way, overcrowding of stores in the United States is eliminated because customers receive goods and services from convenient store locations.

Raising Sales Effectiveness

            In the modern times, retailers consider online tools to improve sales effectiveness in physical stores. Indeed, they have replaced existing functions by either leveraging online tools or replacing the existent functions with alternatives online. Consequently, they provide complementary functions and solutions to traditional physical stores. Ikea, for instance, has a Catalogue App for customers to purchase goods and pick them up at specified stores worldwide. Customers can access important details such as product size, color, and content from the application software. Hence, they can choose appropriate furniture at any time or anywhere and go to the store to pick them up rather than wasting time looking for them. In 2015, Canadian Ikea’s web traffic increased by 240%, resulting in a sales boom through traditional retail stores and the App.

            Walmart, on the other hand, developed application software to double up as a marketing platform and product finder for buyers. It provides information on product details and pricing. Besides, the firm can use this application to locate customers and customize advert contents to suit the market demands. In the long run, Walmart has sold more products to offline customers using technology and online channels.

Geographical Range of Online Resources

            Traditional retailers use online tools at physical POS (point of sale) for expansion of product availability and coverage. For example, Bloomingdales uses tablets at its outlets for the buyers to view unavailable items. In this way, the company has effectively extended its product portfolio without the need of store expansion. The move is particularly important in a business environment where traditional retail store rents are surging significantly. Essentially, the operations department minimize the added overheads at physical outlets. Further, the customer has an option of ordering out-of-stock products through online catalogs.

            Traditional retailers use online tools to cover a larger geographical area without expanding the conventional retail network. Zhao and Wang (2014) admit that in China, UNIQLO leverages online presence to widen its market. In fact, more than two-thirds of its online sales come from second and third tier cities where the firm’s physical stores are limited. Additionally, the company’s strategists have shaped a seamless customer experience via synchronization of product content and pricing both online and offline.

O2O Business Model Cannot Eliminate Traditional Retailing

            Undeniably, the move by numerous multinationals like Amazon to online retailing has yielded tremendous success.  Besides, online product reviews smartphones and social media have triggered a change in consumer behavior hence disrupting conventional retailing. However, O2O business retail model cannot kill traditional retail due to various reasons. First, business managers employ witty techniques such as the introduction of click-and-collect, ‘the internet of things’, and omnichannel retail to strike back. Second, online retailers and market giants like Amazon move to the offline platform to improve the market conditions and expand their operations. Third, statistics show that purely online sales constitute an insignificant percentage of the overall retail sales. In the United Kingdom, only 16% of customers have embraced an online platform. The number is even lower in the United States and other Western nations.

            In 2015, Amazon introduced a physical bookstore. In addition, it announced a strategic plan to launch more than 250 bookstores globally in the long-run. Once the firm has established a network of conventional stores, they will become delivery hubs for its online business. Still, logistical challenges exist on developing an enormous warehouse situated far from the buyers’ locale. Considering this, the organization saw a need to embrace an O2O business model for same-day delivery. As this multinational diversify, people will purchase commodities like toothpaste using tablets and smartphones in the comfort of their homes.

            Today, there is no need of inspection or shopper consideration with regards to the products purchased and consumed daily. As a matter of fact, people purchase half of the grocery goods like flour, sugar, and vegetables on a replenishment basis. It implies that majority of Americans no longer have to shop for necessities as their smart devices will perform the task.

O2O Business Trend

            The traditionally complex e-commerce platform is shifting to a more horizontal and highly fluid network of business corporations. Weng and Zhang (2015) are convinced that this change allows for a minimized risk while improving knowledge sharing both within and outside the organization. Concurrently, technology expands the scope of innovation such that its openness provides traditional retailers with intelligence for agility and evolution of their strategies.  Resultantly, they respond swiftly and tactically to the available opportunities. In particular, O2O designers are focusing on bonding customers to online business platforms prior to their navigation of physical stores for offline product or service purchase.

            In addition, the designers oversee the relationship with the customer after product acquisition. While this is a complex techno-social endeavor, big data, innovative technologies and collaborative networking underpin the entire process. There are varied scale ranges for O2O business entities and their immediate trading partners. Studies indicate that a handful of O2O services are becoming popular due to the spread of e-transactions and improvement of app security. For instance, Waselni (a Palestinian local transport start-up) utilizes offline and lo-fi models to solve internet connectivity problems due to lack of 3G in Gaza.

            According to Zhand (2014), large corporations are also developing and implementing O2O techniques to attract wider consumer base thus higher revenue. China’s traditional B2C retailers like JD.com and Yiwugoui.com are striking back because of O2O business opportunities. Yiwugou.com is an online version of the company’s physical businesses store. Due to an increasing daily traffic to its site, the management is adopting effective strategies to broaden brand recognition and to build virtual stores for every offline shop. There is a use of 3D imagery to create a replicated digital form for each physical store. Besides, the organization has a long-term global partnership and domestic strategies for combining the online market across macro and micro-contextual levels.

            Contrastingly, JD.com boasts 6000 Chinese suppliers and up to 25 million customers. It is a network of convenience stores creating e-stores online. According to its O2O business strategy, customers can order and collect goods from any of its physical outlets. As a reward, the firm delivers them within an hour, depending on location and type of service. Traditional retailers will have a larger capacity to fuse a ‘whole-systems’ buyer’s lifecycle form. Even better, the continuums of the online-to-offline business model are extended into after-sales services. Therefore, the physical store's staff can address matters arising regarding faults and returns.  If traditional retailers embrace the whole-systems O2O concept, they will make significant commercial gains.

            Su (2013) argues that mobile data platforms like e-books and computing services are blending with cloud services in the provision of innovative service models and rich user experience. Yet, the O2O business model provides a neutral ground for potential buyers and loyal brand customers to engage with the firm’s workers through various mobile information platforms found offline or online.

Conclusion

            In summary, it is clear that most businesses are embracing the growth of online digital space and its importance to the consumers. Indeed, traditional retailers and immediate trading partners are exploring the opportunities and resources to create an O2O business model ecosystem that improves the performance of both online and physical outlets. Besides, multiple market enablers have prompted a proliferation of chances for successful O2O ecosystems. In numerous markets, the adoption of social sites, deep penetration of smartphones, and utilization of barcode technology has risen significantly over the past decade. Moreover, global market players are adopting online payment technologies, making it easier to conduct business online without geographical barriers. Essentially, the application of such technological platforms complements traditional retailers’ specific traits. In the end, crucial aspects of product portfolio and modern IT infrastructure ought to be considered when rolling out O2O initiatives for a smoother transition. It is advisable that all traditional retailers that aim at leveraging online resources to improve the physical asset performance should study the available resources prior to dedicating them to such an undertaking.

Recommendations

            In light of this discussion, I recommend that e-commerce designers contracted by traditional retailers ought to come up with ingenious ways to sustain the existing customer base while targeting new customer segment in an increasingly competitive global business environment (Lin et al., 2014). If they do this, they will meet the end-users’ budding interest in an interactive, engaging, and compelling retail spaces. Not only is this important for customer satisfaction, but also market share retention.

            Secondly, the designers should discover new techniques to translate product data and to communicate enticements. I advise that rather than relying on internal expertise, they must seek intelligence and knowledge outside the traditional confines often associated with limited innovation and organizationally funded R&D (research and development) practices. Additionally, it is important for business strategists to make sure that customer’s input and buy-in take a center stage from the beginning, given that only businesses that implement innovative business practices exhibit high survival rates.

            Third, the service providers and business leaders should focus improving on physical interfaces and other hi-tech components like real-time communication and prototyping techniques before evaluating their long-term impact to the organization in terms of sales revenue and profitability. However, they must realize that evaluation, planning, and management of the causal logistics will be a recurring challenge.

            Lastly, it is important for traditional retailers to embrace social media with an aggressive marketing strategy for product and service promotion. Meeting such goal prompts offline sales generation. For instance, QR codes embed digital coupons into mobile payment platforms and offline POS (point of sale). The essence of O2O is that there are several elements that are irreplaceable digitally, even though e-commerce can swap most of the conventional ‘brick-and –mortar’ sales. Still, online fundamentals to shopping exist, thus calling for the integration of physical retail centers with e-commerce through O2O business concept.

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