What is 'Online-to-Offline Commerce'

Online-to-offline commerce is a business strategy that draws potential customers from online channels to make purchases in physical stores. Online-to-offline commerce, or O2O, 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. O2O is related to but not the same as the concepts of "clicks-to-bricks" or "click and mortar."

BREAKING DOWN 'Online-to-Offline Commerce'

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.

Online-to-Offline Commerce and 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.

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 Commerce Trends

More than 80% of retail sales will still happen at physical locations in 2020. And despite the best efforts of Amazon.com, just over 8% of retail sales happen online. Now consider Amazon's $13.7 billion purchase of Whole Foods in 2017 and you can see where the leader in online commerce is placing its bets. Aside from Amazon, every top-10 retailer is a brick-and-mortar operation. That's not to say that traditional retailers aren't hedging their bets. Walmart has spent mightily to bridge the gap between online users and retail locations, including its 2016 purchase of e-commerce company Jet.com. Consider that about 80% of consumers research items online before making a purchase, and one can see that the future lies in a convergence between online and offline sales.

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