What Is Online-To-Offline (O2O) Commerce?

Online-to-offline (O2O) commerce is a business strategy that draws potential customers from online channels to make purchases in physical stores. Online-to-offline (O2O) commerce identifies customers in the online space, such as through emails and Internet advertising, and then uses a variety of tools and approaches to entice the customers to leave the online space. This type of strategy incorporates techniques used in online marketing with those used in brick-and-mortar marketing.

Key Takeaways

  • Online-to-offline (O2O) commerce is a business model that draws potential customers from online channels to make purchases in physical stores.
  • Techniques that O2O commerce companies may employ include in-store pick-up of items purchased online, allowing items purchased online to be returned at a physical store, and allowing customers to place orders online while at a physical store.
  • Amazon's purchase of Whole Foods Markets and Walmart's acquisition of Jet.com are two examples of O2O commerce.
  • Target, Walmart, CVS, and many other retailers have increased home delivery and/or curbside pickup services as two effective O2O strategies to meet consumer needs for safe shopping options.

How Online-To-Offline (O2O) Commerce Works

Retailers once fretted that they would not be able to compete with e-commerce companies that sold goods online, especially in terms of price and selection. Physical stores required high fixed costs (rent) and many employees to run the stores and, because of limited space, they were unable to offer as wide a selection of goods. Online retailers could offer a vast selection without having to pay for as many employees and only needed access to shipping companies in order to sell their goods.

Some companies that have both an online presence and an offline presence (physical stores) treat the two different channels as complements rather than competitors. The goal of online-to-offline commerce is to create product and service awareness online, allowing potential customers to research different offerings and then visit the local brick-and-mortar store to make a purchase. Techniques that O2O commerce companies may employ include in-store pick-up of items purchased online, allowing items purchased online to be returned at a physical store, and allowing customers to place orders online while at a physical store.

Special Considerations

The rise of online-to-offline commerce has not eliminated the advantages that e-commerce companies enjoy. Companies with brick-and-mortar stores will still have customers that visit physical stores in order to see how an item fits or looks, or to compare pricing, only to ultimately make the purchase online (referred to as “showrooming”). The goal, therefore, is to attract a certain type of customer who is open to walking or driving to a local store rather than waiting for a package to arrive in the mail.

Online-to-offline (O2O) is related to, but not the same as, the concepts of "clicks-to-bricks" or "click-and-mortar" models.

Online-To-Offline (O2O) Commerce Trends

Consider Amazon's $13.7 billion purchase of Whole Foods in 2017 and you can see where the leader in online commerce is placing some of its bets—in physical space. Amazon will even let you pay with your Amazon Prime credit card at Whole Foods and earn 5% rewards, the same as if you used your Amazon card to pay online.

That's not to say that traditional retailers aren't hedging their bets as well. Walmart has spent mightily to bridge the gap between online users and retail locations, including its 2016 purchase of e-commerce company Jet.com for approximately $3 billion. One of Walmart's goals for the acquisition was to make inroads in reaching city dwellers and millennial customers, demographics that Jet had excelled in attracting with their massive user base that added about 400,000 new shoppers each month.

Acquiring companies that already have a huge online shopping customer base is just one O2O commerce strategy retailers like Walmart are using. Expanded services like home grocery delivery and curbside pickup are other O2O services that retailers offer. Target, Walmart, CVS, Kohl's, Best Buy, and many other retailers all offer contactless curbside pickup. This service enables shoppers to buy what they need in a safe and timely manner without having to enter the store or leave their car. Walmart executives see these types of value-added services as key to the company's growth and reported that e-commerce sales grew 97% in the U.S. in the second quarter of 2020.