NAME : REAGAN

Online-to-Offline Commerce

REVIEWED BY ADAM HAYES

Updated May 10, 2019

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.

[Important: O2O is related to, but not the same as, the concepts of
"clicks-to-bricks" or "click and mortar" models.]

How Online-to-Offline 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.

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.

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 2017 purchase of Whole Foods Markets is a prime
example of O2O.

Online-to-Offline Commerce Trends

It is projected that more than 80% of retail sales will still happen at
physical locations in 2020. And despite the best efforts of e-
commerce sites, only around 8% of retail sales currently 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—in physical space. Amazon will even
let you pay with your Amazon Prime credit card and earn 5%
rewards, the same as if you used your Amazon card to pay online.

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. Wal-mart 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.