Vyom

कर्मण्येवाधिकारस्ते॥

Online and Offline Integration for Retail: Buy Online Pick Up In Store (BOPS)

In the previous article I discussed about Internet and eCommerce Trends in China and in second one discussed about eCommerce Services Market Size in China, in this article I will explore Integration of Online and Offline Channels in Retail: Impact of Buy Online and Pick Offline on Sales (also known as BOPS). I am always interested in research and analysis in the integration of online and offline in retail. This helps me in my strategy work for solution and services portfolio, which directly address the challenges faced by traditional retail and consumer brands for transition from pure offline and online operations to an integrated online-offline operations. Also this seems to the future direction of retail.

  • In-store Sales Increase 3.6%
  • Online Sales Decrease 1.8%

Yesterday (i.e. 23 rd July 2013) I was intrigued by research work [1], which shows a very interesting conundrum. Contrary to expectations the implementation of Buy-Online-Pick-Offline (BOPO) resulted in reduction in online sales and an increase in in-store sales and traffic. This prompted me to write this article to share with others my point of view on this.

Introduction

Online retail is growing steadily with double digit growth rates worldwide with the ubiquity of internet and proliferation of computing devices like laptops, desktops, smartphones and tablets. In some cases online retailers start to cannibalize the sales from traditional offline retailers like the case of Amazon affecting BestBuy. Current internet trends and consumer behaviour is forcing traditional retail and consumer brands to embrace digital transformation and launch online retail. Originally most traditional retail and consumer brands decided to separate the operations of traditional and online channels. Now some of them are exploring integration strategies for their online and traditional offline channels (called multichannel retailing [2]). Retail and consumer brands are adopting multichannel retailing to:

  1. Gain access to new markets - The market for store-based retailers is typically limited to the local trading areas of their stores. Thus, adding non-store channels (e.g. Interne, catalogs, mobile phones) enables retailers with limited locations to exploit economies of scope by expanding their markets without building additional stores. With the rapid growth ofonline retail, most consumers will become multichannel shoppers eventually, which means that segmentation based on channel choice may not be very useful in the future.
  2. Increase Customer satisfaction and loyalty - Multichannel retailers can better satisfy their customers’ needs by exploiting the benefits and overcoming the deficiencies of each channel. Moreover multichannel customers on average spend more and have a higher lifetime value (LTV) than single-channel consumers [4].
  3. Create a strategic advantage - By developing resources that are not easily detected or duplicated by competitors like propriety customer information and tacit knowledge for providing a seamless customer interface. Also this helps in reducing costs and increasing revenues.

In advanced economy like USA more then 80% of retail and consumer brands sell merchandise through multiple channels. In China still most traditional retail and consumer brands do not have or in process of having multichannel retailing. Integration between online and offline channel varies widely among retail and consumer brands. For example most traditional retail and consumer brands often show in-store inventory availability information online and most consumers can do research online and buy offline (ROPO). Advanced configuration includes shipping the product ordered from the store closest to its detination, or offering the option to buy products online and pick them up in the store, or offering to return a product bought online in the store, or order in store and ship to home.

In most of the advanced economy like USA, Western Europe many large traditional retail and consumer brands offer Buy Online Pick Up in Store (BOPS). The retailer during online shopping process shows the locations at which the item is available, and gives customers the option to close the transation online and then pick up the product at one of the locations. Usually the item is ready to be picked up at location within 2 hours, some retailers might take longer but this is the mean average for BOPS functionality to have an impact.

Impact of BOPS

Based on the research done on this subject [1]. Following is the impact of BOPS:

Impact on Online Retail

  • Online Traffic Increased from the areas near the store where BOPS is implemented.
  • Shopping Cart abandon rate increased from the areas near the BOPS store.
  • Online sales decreased overall. Analysis based on the geographic origin of sales indicate online sales decrease from the areas near the store where BOPS is available. Sales from the areas far away from BOPS store did not change.

The results of analysis done during the research go against the conventional wisdom, which suggest that online sales should increase after the BOPS implementation, since customer have more options for delivery and pick-up.

Impact on Offline Retail

  • Sales increase in store offering BOPS.
  • Sales remained relatively same for the store not offering BOPS.
  • Foot Traffic increase in store offering BOPS.
  • Foot Traffic remainined relatively same

The analysis of BOPS impact on online-offline integration strategy shows that, contrary to conventional wisdom, online sales do not always increase with the implementation of the BOPS functionality. Indeed it resulted on lower online sales, higher store sales and higher store traffic. Also increase in offline sales not just compensates for decrease in online sales but gives an overall increase in the sales. One of the consequences of the increase in online activity in retail is the availability of richer data that can be used to evaluate the impact of operational interventions and to discover relationships beween different operational aspects of the business. But the available data is often channel dependent. Incentives for managaers are also often channel dependent. But the analysis shows that decisions affecting one channel should be evaluated holistically across all the channels. Evaluating the impact of online-offline integration strategies (i.e. multichannel retail startegy) requires a holistic view of company operations, since an intervention that might be detrimental in one channel can yield substantial benefits in the other channels. So evaluation actions in multichannel retail require closed the loop analysis and the impact needs to be evaluated in a holistic manner across all channels. This study results might depend substantially on the type of the products or specific industry of retail and consumer brands. The study is conducted on products which have an experimental component and shopping in the store is a pleasant experience. For highly standardized products, or for products which lead to a less pleasant store experience it is possibe that BOPS implementation does not result in such a substantial shift from online channel to the offline store channel.

Randomized field experiments are needed to clearly identify the impact of multichannel retail strategies implementation. If randomized field experiments ae not possible than retail and consumer brands need to develop a framework which evaluates online and offline channel strategies in a holistic view measuring the overall impact on the organization and just confine to single channel.

Footnotes

[1](1, 2) Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information
[2]Crafting Integrated Multichannel Retailing Strategies
[3]Optimality of Four-Threshold Policies in Inventory Systems with Customer Returns and Borrowing/Storage Options
[4]Challenges and Opportunities in Multichannel Management