Insights on Marketing & Technology

Exploit your business's online potential

Taken as a sales channel, online is growing in importance, and while it offers existing players new opportunities, it also increases competition. Customers shop online with established competitors that also possess physical stores, as well as with businesses that are strictly online players. The market share occupied by international players is also increasing. According to FDIH, 30% of online sales revenue in the first quarter of 2013 went to international players, which is an increase of 20% compared with two years ago.
    In the last six years, revenues in Danish stores have decreased by 10%. Due to the financial crises and growing competition online, retailers are under pressure, especially when judged by their total profitability. A growing number of stores are experiencing low or even negative profitability.
    Therefore, most companies are aware of the fact, that in order to succeed in the future, something must be done to explore and exploit their online potential more effectively. However, that potential is often misunderstood and there is a tendency to focus on online as an isolated, stand-alone sales channel.

Don’t just shut down stores because of the growth in online sales
A growth in a business’s online sales doesn’t suggest the closure of stores with low profitability. It makes sense to hope for an increase in online sales in order to be able to shut down one’s least profitable physical stores, seeing as this would reduce the cost of distribution. However, as shown in figure 1, this unfortunately doesn’t reflect the reality of things.
    The problem with this line of reasoning is that online sales not only increase for  the company in question, but also for competitors. This affects the profitability of all physical stores, since customers from all parts of Denmark buy online.
    Even if a company does manage to increase online sales relatively more than its competitors, it will still affect the profitability of all stores.
    As a result, cost-saving in stores while moving sales to the cheaper online channel, is only marginal (mainly sales provision) and does not include, for example, rent, heating and electricity.
    Furthermore, online might be a cheap and cost-efficient sales channel, but when trying to boost online sales, the costs incurred can be a lot higher and can easily exceed the marginal cost related to selling in physical stores.

Online sales can’t be boosted ‘stand alone’
It makes good sense to optimize a website by ensuring user-friendly product pages and an easy-to-use order flow to generate a positive customer experience, thereby increasing sales.
    If the company wishes to boost online sales through additional methods, it can become very expensive, since it often demands increasing paid traffic and providing special online offers. By giving customers discounts for buying online, sales can be increased, but this is costly as the discounts must be significant in order to be effective. On top of this, such offers usually affect existing online sales. Furthermore, the website plays an important role in generating traffic to physical stores and this traffic will be reduced if there’s a wide gap between the prices available online versus those in physical stores.
    Therefore, the role and future potential of online activities should not only be measured in terms of direct online sales, but also by the positive effects that online can have on sales in physical stores. These effects are illustrated in figure 2.
    Since many customers do their research online before buying in stores (the so-called ‘research online, buy offline’) we know that online does increase traffic to physical stores (1).
    Because customers are more committed to buying a company’s products when inside a physical store, the average sales time before the transaction is completed is reduced (2), which makes it possible to increase sales efficiency (important, e.g., in peak hours). Furthermore, the conversion of traffic flow into sales is higher, also due to customers being more determined (3).
It must be added, that stores can also play an important role in increasing online sales. For example, if a customer can’t make the final buying decision in the store, an email could be sent, conveniently linking the customer with the product they were interested in.

The challenge
None of us can predict how much will be bought online in the future, and furthermore, these figures will also depend on the specific type of product in question. Hence, we don’t know what the consequences of these sales will be for physical stores, nor do we know how they will impact the distribution of sales among resellers with physical stores, Danish online players and international players.
    However, I believe that in order for a reseller to increase his chances of success in the future, it is vital him to face the challenge and to start optimizing his online activities as an integrated part of his company, and not just as a standalone sales channel.
My three main points of advice would be:

  1. Focus on how online can help increase sales in other sales channels.
  2. Ensure an online buying experience that offers customers the same advantages they have in physical stores.

Don’t forget to give customers great online service after a purchase, as well as before.

Online must support sales in physical stores
It must be made clear that online does not solely play a role in overall sales by generating sales itself, it also supports other sales channels including physical stores.
In addition to its ability to provide customers with whatever information they seek, it can also help by making it easy to complete the purchase in a physical store. A simple example is to have a store locater on the site, but more advanced functionalities can also be implemented.
    One example of this is a solution offered by the Danish chain, Elgiganten, where customers have the option of buying online and then picking up the product(s) in a physical store. By offering customers this option, they know that the product isn’t sold out and that they can then finish the transaction quickly in the store. Another example is provided by Ikea, who enable customers to check online whether or not a given product is available at a specific store.
    If the company has a telephony sales team – such as, e.g., mobile providers – it’s also an idea to make it easy to contact them if the customer wants personal help. “Should we give you a call within 60 seconds?” pop-ups in the order flow are a way of implementing this.
    Another positive outcome of giving customers easy access to help and to multi-channel contact options, is an improvement of the company’s brand image – it gives the impression of being available and present. The website is thereby experienced as an integrated part of the company.

Give customers the same advantages as in physical stores
The experience online and in physical stores does not have to be identical, but it is important to work out a strategy where some of the positive characteristics of the buying experience in physical stores translates to online. By achieving this, the customer’s brand loyalty can be leveraged online and one can maximize the advantages of having physical stores in competing with pure online players.
    A good example of this theory in action is demonstrated by Bahne has successfully pinpointed what makes Bahne special with its physical stores and then offered some of these unique qualities online:

  • The website looks nice, it’s inspirational and there are large, detailed pictures of the products.
  • Gift wrapping is offered at no extra cost.
  • It’s possible to write a message to the receiver of a gift, which Bahne then puts on a handwritten card to go with the gift. This is also a free service.

Initiatives like these help Bahne ‘transfer’ its existing reputation and preferred qualities online. Even though some purely online players also offer some of these options, capitalising on the consistencies between Bahne’s stores and online presence still increases Bahne’s chances for securing a fair share of online sales.

Don’t forget online service
As described in my book, ’Online Customer Service’, ensuring that customers can find the help and information they need online is often neglected. This typically happens because online analysis is primarily focused on sales, and service parameters are not measured in as great detail.
    However, it is important for companies (resellers as well as others) to ensure that customers get the help they need. For resellers, it’s probably more obvious, as selling online generates calls and emails, whereas all traditional requests from customers would have happened in physical stores.
    And service is not only about helping the customer after their purchase. Perhaps for instance, in anticipation of buying, a potential customer wants to see how a product should be installed, maintained and used. Or they want to read about the return policy, or even about how the company handles defective products.
    Online service is not only about saving money (avoiding calls and emails) but also about increasing sales and satisfying the customer. Becoming frustrated when looking for information on a company’s website has a negative impact on that
company’s brand.

The future
I believe retailers will increase their online efforts in the coming years to secure a fair share of the sales that will move online and out of physical stores. Furthermore, this effort will increasingly focus on creating a coherent buying experience between online and physical stores and on ‘tying’ them closer together by offering functionality that makes it easier for the customer to switch between channels at all stages of the buying process. It is not an easy challenge and some will succeed and some will not. Will you? 

Jacob Lego Boye

Jacob Lego Boye is a consultant and author of the book 'Online Customer Service', which is based on his experience during his many years as eBusiness Director at Telenor.