Trends and forecasting
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The pressure on offline retail is growing with online retail’s move onto mobile platforms creating instant price transparency. The GfK finding that customer journey patterns are mixing online and offline in the purchase process means that retailers now need to invest in a truly omnichannel approach where both online and offline retail complement each other. By taking this creative route, bricks and mortar will continue to have a successful role in the market for tech products.
There seems to be gloomy news on an almost daily basis concerning the future of offline retail, which can often lead to the impression that it struggles to compete with its online retailing counterpart. The accelerating success of online retail is largely attributed to some undeniable advantages of the channel: it is straightforward to find what you are looking for from a vast selection of goods, prices are very competitive, and it is easy to shop around for bargains. Not having to drag yourself out in the rain, no spending money on high petrol prices, and no wasting time circling for a parking space when online delivery, and even returns, are often free. Indeed, online retail has been getting progressively better at creating positive experiences for consumers through innovations such as one-click shopping, personalised recommendations and linkages to social networks to not only see what your friends have bought but to show off your own purchases.
Yet we are now entering a new phase which has the potential to impact physical retail spaces more than ever, thanks to the introduction of new mobile-based apps that enable instant price comparisons. Flow, for example, is an iPhone app launched by Amazon subsidiary A9.com which allows users to scan barcodes of items in store to display the Amazon.com product information. So rather than buying the product from the store, shoppers can purchase immediately from Amazon. E-Bay is among a number of other brands that have launched similar apps, and more will inevitably be released in due course. The spiralling costs of offline retail (rents, employee costs etc.) means that the increased price pressure this creates could make it even more challenging to compete effectively with online channels.
So what is the role for offline retail?
Whilst purchase journeys have clearly changed in response to cutting-edge online retail initiatives, it is important to note that the overwhelming majority of tech products are, in the end, still purchasedthrough offline retail (see Figure one). Whilst online will clearly continue to encroach, GfK forecasts are not indicating a sudden decline in the offline channel. This evidently raises the question of why consumers continue to purchase technology products from bricks and mortar stores when there are so many good reasons to shop online. We have identified three key reasons why the offline retail environment is proving to be resilient for tech products:
Whilst online is certainly useful in terms of search and purchase, it can be hard to beat offline for the convenience of other aspects of the customer journey. Offline is, for example, the only way you will get your hands on the highly desired piece of kit straight away without having to wait for at least a day. And despite the everimproving delivery speeds of online stores, this is clearly a tough one to beat.
Related to this, if there are problems with the purchased product there is an undoubted ease when returning the device to a shop for refund and repairs compared to having to package up the item and organise return delivery.
2. Increased complexity = need for guidance:
The nature of the products which are dominating tech sales perhaps provides some clues about how traditional sales channels may continue to have an important role. GfK data shows strong growth in smartphone and tablet sales whilst observing declines in sales volumes of other, more traditional, technology products such as satnav and plasma TVs. A key feature of these growth product areas is that they clearly rely on ecosystems that will typically interconnect devices in order to operate optimally. Previous research from GfK has shown that consumers want to evolve the mobile experience and benefit from accessing content across different devices.
And it is surely here that there is a very clear role for technology retail as consumers look for good quality advice in the face of the growing complexity of the products they buy. More confident consumers who will typically figure it out themselves often want to go in store to ‘road-test’ the technology and quiz the sales staff to make sure that it delivers on the points that are important to them. Less confident consumers will frequently want to go in store to get reassurance about their purchase.
3. Touch and feel:
There is a long standing tradition among consumers of wanting to ‘touch and feel’ goods before they buy them. This is true in many categories such as food, where shoppers often still want to see the fresh products before they buy, and clothing, where consumers continue to try them on before they purchase.
In the technology sector this trend is also evident, with consumers increasingly wanting to experience the products of interest. The Apple Store is the prime example of this with a theatre for presentations, a studio for training with Apple products, a Genius Bar for technical support as well as free workshops available to the public. Another example is the way in which shops selling gaming products frequently have zones that allow shoppers to play with the latest consoles and games. The limited data available on the success of such approaches are compelling. A recent study (1) estimated that Apple makes $5,626 per square foot of floor space from its US stores, thus making it more sales per square foot than any other U.S. retailer.
Rethinking the customer journey
So if we are right and these factors do indicate a clear role for tech products via offline retail, then how does this interact with online retail? Discussion of the consumer purchase journey often appears to infer a fairly linear process, with consumers researching online, perhaps going in store to check the look and feel of the product, and then probably closing the transaction online.
However, recent research from GfK, which tracked PC tablet purchase journeys of a representative sample of the online population, challenges the assumption that this process is as undeviating as has been suggested. First, the study found extensive movement between channels with people switching from store to online and back again, and not necessarily in a consistent and linear fashion. Indeed, the myth that different channels deliver discrete functions was completely dispelled by the research findings as consumers were found to be moving across both online and offline channels at each stage of their purchase journey.
The implication of this is that tech companies need to ensure consistency of message across multiple channels which complement each other moving forward. For example, whilst both online and offline channels are used extensively for all types of research, we found offline-only tablet buyers were much less satisfied with the level of detailed information available. The online environment has geared up expectations that large amounts of information will be available to assist in making their purchase – why would they not expect this to be available in store as well as online?
When it comes to making a purchase, although there was no clear preference for purchase channel amongst the tablet purchasers, it is clear consumers need to be reassured they are getting the best deal regardless of which channel they purchase through. No matter how useful and enjoyable the bricks and motar experience, there is still a significant risk that consumers will simply use the offline channel to try out the products and then purchase online.
Adopting an omnichannel approach
In this light, the challenge for retailers is to understand how to ensure their online and offline channels are complementing each other, thereby leveraging their respective benefits to generate sales. Today’s shopping experience means that awareness of products and increased footfall can be raised through online marketing using tools such as coupon codes, location-based promotions and optimized search terms. Products can increasingly be reserved online before going in store to check the product out and make the purchase. In store online tools are becoming more common providing more information to allow customers to purchase items quickly and efficiently without having to queue.
This mix of channels enables retailers to take a more targeted approach to different parts of the market, some of which will continue to be served in the traditional manner, whilst others may need a focused effort to encourage consumers to visit stores more regularly. Brands are now in a much stronger position to craft multichannel strategies to meet the needs of specific consumer segments.
There are, however, significant challenges for brands adopting an omnichannel approach:
- Developing an effective role for offline is an expensive business: purchasing the right space on the street, fitting out the shops, buying the necessary kit, and training sales people to the appropriate standard all comes at a high price.
- Breaking down the barriers between online and offline: brands will typically use sales as the marker of success of a channel, with sales per square foot being a well known measure of the effectiveness of a particular store for example. The adoption of a successful omnichannel approach involves ensuring that each channel performs a complementary role for generating sales and that the success is measured in terms of total sales and not as a function of the source of the sales.
Perhaps the biggest vote of confidence in an omnichannel retail environment is the apparent move of previous Internet only brands into retail. Microsoft has been steadily rolling out a successful experiential store format across the US, eBay is growing business drop-off stores which support prospective sellers in the physical world, and there has been plenty of speculation that Google or Amazon are about to launch a physical store. If brands that are predominantly digital are seizing the opportunity then surely we can take this as a strong signal that when combined effectively, both online and offline can continue to have a crucial role in boosting sales.
1) US firm RetailSails: http://retailsails.com/2011/08/23/retailsails-exclusiveranking-u-s-chains-by-retail-salespersquare-foot/
2) GfK Retail Panel and the figures are based on full year 2011 B2C sales for technical consumer goods.
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