Strategies for Beating Online Competition
Many believe that brick and mortar retail shops cannot compete with hyper efficient online retailing with rapid delivery. Although efficient online competition does make it harder to be profitable, brick and mortar stores can compete successfully.
One reason this idea is untrue is the inherent assumption that all markets are commodity markets, rewarding only those with the lowest prices. The second assumption is that customers don’t value non-price factors such as customer experience and convenience.
For some customers, these issues aren’t worth the significant cost advantage passed on to customers that online competition offers. For other customers, these issues can be critical. If you are losing business to online competition, you need to understand what’s going on in your customers’ minds.
First, what are the economics involved?
Direct online retail sales eliminate the cost of middlemen, the costs of distribution and retail operations, which are significant. Advertising may be more efficient, as well, since the link from online ads and paid placement is much clearer when the customer buys online. The cost of shipping product to the customer may be small compared to delivery fees to brick and mortar retail. In addition, larger online sellers can see economies of scale in advertising, operations and shipping.
Cost advantages make beating online competition more difficult.
These advantages often translate into significantly lower prices for some products when purchased online. Commodity customers, naturally, are likely to be attracted to lower prices, even when the cost of shipping is considered. Specialty customers may be attracted by lower prices, and the availability of a wide range of products online.
So, what does a brick and mortar operation do? Brick and mortar companies tend to succeed with customers who respond to three areas where online sales are at a disadvantage in many markets.
1. Customer experience is a great way to beat online competition.
The customer experience is a valued part of the purchase in some markets, for some customers. Walking into a greenhouse in the Winter to buy plants can be a pleasant experience for customers in colder climates, for example. Likewise, some book purchasers prefer the experience of browsing physical books at a bookstore when shopping. Online retailers simply cannot offer a tangible physical experience of an offline visit, and offline sellers can retain many specialty customers by paying attention to this experience advantage.
Obviously, online users may experience technical difficulties online, but it would be a mistake to assume that these issues are likely to remain (especially in the long term).
2. Timeliness will help beat online competition.
Online purchases generally involve some delay in receiving product, even with the most efficient shipping options available. Hybrid sales – where the purchase is made online and the product is picked up in person – are a little better. Picking out a product and purchasing it immediately, however, has the lowest delivery time in most cases. The main exception is when a brick and mortar retail operation has significant delays, such as cashier lines. Hybrid operations reduce these delays. The time advantage is important in many consumer purchases, and should be emphasized as much as possible. Likewise, if your operation introduces delays that customers might find frustrating, it’s worthwhile to reduce or eliminate those.
3. Ease of interaction
Recently, I went with a friend to purchase materials for a home improvement project. Neither my friend nor I are experts in this area, and we weren’t certain which approach to the project would be best. A short conversation with a knowledgeable store employee enabled us to explore and examine the alternative materials and their features. An online interaction can feature interaction (using chat or voice interactions with the customer). Very few, however, can give the experience of both back-and-forth conversation and access to physical product for illustration. In many markets, brick and mortar operations can use this combination to create advantage over online competition.
The three areas above are critical for brick and mortar businesses to beat online competition.
Likewise, online businesses need to be aware of these factors because they may drain some customers away from online purchases. There are a few things a local business should keep in mind when considering these factors.
1. Never make a customer wait to give you money – or anything else, if you can help it.
While this adage is focused on time, it’s important to remember that customer cost (that is, the cost of the sale to the customer) is not just about the money that changes hands. Sometimes the time involved can be a major differentiator, and it usually is when looking at different channels of purchasing. Every second a customer waits in a brick and mortar store makes the convenient delivery of a product in one or two days seem more attractive.
2. Focus on delivering the highest value available through your channel
If you can shake the customer’s hand, look them in the eye, and have a valuable conversation, you can do things an online retailer cannot do. Likewise, if you are selling online, anything that can approximate that experience can make your offering more valuable and competitive. In addition, the purchasing environment should be managed to offer a benefit to the customer in simply being there – whether “there” is your store or your website. For brick and mortar operations, pleasant sounds, nice aromas and interesting spaces are difficult for am online retailer to replicate. Tangibility – the ability to physically touch, examine and interact with some products – may hold value for some customers as well.
4. Remember that some customers may simply prefer the features of your online competition.
An example of this is my daughter, who just loves books. While she may be forced to go to an online marketplace for some obscure title that she has to have, she prefers the experience of going into a bookstore and physically touching the books. Brick and mortar booksellers thrive on this kind of customer, because the trip to the store can be a recreational activity for them. Online booksellers may covet this kind of customer, but it would be expensive and, in some cases, even impossible to woo them away from their preferred channel. Strategically, it’s usually best to let these customers go, rather than wasting time and money trying to be more attractive to them. That’s the best way to compete against an online retailer.
5. Ease the way from your advantage to a purchase
Many younger women go to brick and mortar stores to try on clothing and accessories such as scarves. Then they go home and shop on line to see if they can get better prices. Apparently they don’t mind waiting for delivery. The one thing they haven’t thought of is that there will soon be nowhere to go to touch, feel and try on these items if they don’t support the local brick and mortar stores. How can the local stores compete with this approach? The key is to make it so much easier to move from trying on the product to buying the product that the cost advantage of purchasing online seems less important. Another tactic is to offer products that do not have an easily found equivalent online.
In my next article, I’m going to flip the table and discuss how the online seller can attract and keep specialty customers.
How do you deal with the digital divide? Does it affect your strategy – and should it?
Are you struggling with online competition? If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies. If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings. We also have a great understanding of how to best use your planning time. Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.
Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc. He can be reached by email at baldwin@cssp.com.
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Co-Author Robert Bradford
Co-Author Dana Baldwin