In my last article, I discussed ways that brick and mortar businesses can compete with hyper efficient online counterparts. Today, we flip that thinking on its head and look at ways digital businesses can compete with brick and mortar.
Many online businesses don’t worry too much about brick and mortar competitors, but many of you should be worried.
Why? As an online provider of something that customers can obtain through other channels, you have some serious disadvantages. Digital businesses have some outstanding advantages, as well, but ignoring the dynamics involved can lead to poor marketing strategy.
As digital businesses compete with brick and mortar, they must consider why customers decide to purchase through a particular channel.
First, what are the economics involved? Online businesses usually bypass middlemen, such as distributors and retailers. The cost of analyzing data and targeting customers is also, obviously, going to be lower. Many online businesses pay a great deal of attention to shipping cost. The cost of shipping product to the customer, however, may be small compared to the cost of getting a product into brick and mortar retail. Finally, since a digital business is fully engaged in the online world, they may benefit from economies of scale in advertising and shipping.
Traditionally, online businesses stack up these advantages in cost and use them to offer similar products at lower prices.
This attracts commodity customers, who are motivated by price more than other factors like quality, service and convenience. Specialty customers may be harder to woo, because they are willing to pay a premium for service and convenience.
As a result, commodity buyers typically are the first and most loyal customers for the typical online business. Comparatively, specialty customers may be more difficult to obtain. Furthermore, there are some costs that commodity buyers may examine which will create a disadvantage for online sellers.
How an online seller thrives within this dynamic revolves around the three areas where online sales are at a disadvantage. Brick and mortar companies tend to succeed with customers who respond to these.
1. Customer experience
As noted in my last article, some customers in some markets place a high value on the experience they have in purchasing offline. This may involve a relationship with a knowledgeable salesperson or the physical experience of being in a pleasant store. The digital idea of “customer experience” (often referred to as Cx) usually focuses on ease of use. The visually pleasing (or displeasing) aspects of a web page can also be a factor. While these are important, online businesses need to remember that the digital purchasing experience tends to have fewer dimensions than the offline experience. These differences make the experience “flatter”. It’s similar to the way a three dimensional object is flatter when you draw a two dimensional picture of it.
The flatness of the online experience is a critical competitive tool for brick and mortar businesses.
Currently most people don’t have the ability to touch and smell anything about you in a strictly online experience. The most expensive efforts in user experience in the digital world are about decreasing this flatness. An online business can provide video and audio experiences that simulate the abilities of a product or service, for example.
For commodity customers, this investment is largely wasted. Commodity customers pay inordinate attention to a single dimension of the purchase: the price. Online offerings serve this dimension better, since price is just a number. The main advantage offline businesses may have in this area involves physical adjacency. I can put an even cheaper alternative next to something in a store, for example, to gain the customer’s attention. Well-designed online offerings can do this, as well, but you are limited by the physical real estate of the page. Alternatively, offline businesses have a much larger visual canvas to paint on.
With specialty customers – those who primarily choose to purchase based on non-price attributes – flatness can be a real disadvantage. If you are targeting these higher-end customers, you can improve by investing in both traditional Cx and adding dimensions to the presentation. The examples I cited earlier, video and audio, are good ones. They cost much more than simply putting a picture on a store listing on your site, but they fill in important gaps in the experience which specialty customers may find critical.
Time is a big issue for online businesses, whether it’s an advantage or a disadvantage. The advantage – especially with digital product and service offerings – is that you can literally deliver a product or service almost instantly to the customer. In addition, customers can save time in locating products or services compared to offline approaches. Obviously, they don’t have to physically move around looking for the things they want.
Clearly, the biggest disadvantage online comes when the customer buys a physical product or service which must be delivered. Yes, shipping can be arranged and onsite service can be offered. The inevitable delays involved, however, may diminish value for customers who seek – and are offered – instant gratification.
Some players are using or experimenting with hybrid sales models. In this case, the product or service is selected and purchased online but then picked up in person. In some markets, this is actually a higher value option than either pure online or pure offline operation, but there are costs involved.
3. Ease of interaction
When customers have any desire to interact during or after a purchase, offline players gain a lot by enabling a direct, face to face interaction with an employee. This is sometimes faster than the same interaction would be online, and it is usually easier for the customer, who is likely more comfortable talking than typing. In-store salespeople in brick and mortar businesses can also direct customers more intuitively and engage in more dimensions of communication, like gestures and body language.
Another difference is returns. In an offline environment, the return can be made directly during a customer’s next visit to the store. In the online situation, customers must repackage the product, and then make a special trip to ship it. Some people may avoid online stores because of the inconvenience of making the return. Stores like Eddie Bauer, make online returns easier by accepting them at their brick and mortar stores at no charge.
The three areas above are exactly the places where offline competitors will be likely to take customers away from an online business. If you don’t pay attention to these, you will lose some sales that you could get. That’s not always a bad thing. Your strategy should clearly identify where it’s OK to lose customers. Many online businesses, however, lose out because they don’t even look at the easy, inexpensive ways to be more competitive.
There are a few things a business should keep in mind when considering these factors.
1. Always reduce the time it takes to select, buy and receive what you sell.
I constantly advise offline companies of the importance of customer cost (the cost of the sale to the customer). It’s 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. Remember, you may be fighting against offline competitors who are offering instant gratification. Consequently, anything you can do to be faster is likely to reward your customers.
2. Focus on delivering the highest value available through your channel.
In online environments, this means selection, speed of purchase and (sometimes) price. But don’t overlook that you can, for example, add instructional videos and online analysis tools to your site. You can do this with an ease that is difficult for your brick and mortar competitors to match.
3. Remember that some customers may simply prefer the features of other channels.
There are some markets – and some customers – that will always want to do things the “old fashioned way”. Some shoppers, for example, gain pleasure from walking through certain types of brick and mortar stores. Strategically, it’s usually best to just let these customers go, rather than wasting time and money trying to attract them.
In my next article, I’m going to look closely at the idea of flatness and how it can affect customer behavior online and offline.
How do you deal with the digital divide? Does it affect your strategy – and should it?
Are you struggling as an online competitor competing with brick and mortar businesses? 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 email@example.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.
Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc. He can be reached by email at firstname.lastname@example.org.
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