ABSTRACT

Is brick-and-mortar a substitute or a
complement for online sales? – Substitutes in
distribution, compliments in marketing
communication.
Assignment 1 | Individual Commentary on
Current Issue | Pravet Kanwar
Can Offline Stores 216821001 | MKTG 5200

Drive Online Sales?

Article by Kitty Wang, Avi Goldfarb First Published on
October 1, 2017 | Journal of Marketing Research |
American Marketing Association
To: XYZ, Executive Director
From: Pravet Kanwar
Date: May 23, 2019
Re: Can Offline Stores Drive Online Sales?

Dear XYZ,
This memo is regarding an article I recently came across about the current debate that
we are having in the organization about the value add in opening brick-and-mortar stores.

I was not surprised to read that it has long been debated whether opening retail stores
for an online business complements the sales or is it a substitute. According to this article,
marketing practitioners claim that multichannel marketing leads to synergy and increase
sales, complementing each other. However, academic researchers believe that there is no
proof for this and that the different channels are a substitute for each other.

To investigate this, the authors of this article examined a single firm. They used data from
July 2010 to June 2012 on purchases by 42,000 customers of three bricks-and-clicks
retailers owned by the same firm to provide evidence of both substitution and
complementarity. As an average, they found that online sales increased marginally with
the opening of an offline store. On deep diving into the analysis, they found that in
locations where the brand had strong presence previously, a new offline store led to a
decrease in local online sales and browsing. In contrast, in areas where the brand had a
lower prior presence, the opening of an offline store resulted in higher online sales and
browsing. The authors refer to this phenomenon as an awareness-driven billboard effect.
One of the major reasons that the authors attribute the sale increase to is the rise in the
number of first-time customers from the surrounding customers. These customers start
buying online subsequently and the traffic remains on an upward trajectory for several
months. This happens while the existing number of customers remains the same.

In my view, such a study reveals important insight into the fact that it is advantageous to
complement online sales with the opening of new offline stores, subject to the fact that it
is done in areas where the brand has a lower presence prior to the brick-and-mortar
store. For any brand, it is essential to focus more on brand penetration and increasing
the target market. The sole reason for my opinion is that brand loyalty is often short-
lived. Most customers would substitute the product as long as they see the same value at
a lesser price. Therefore, it becomes important to keep entering newer markets and
finding ways to attract first-time customers. I have the first-hand experience of a similar
concept, although partially unknowingly when my partner and I opened a Quick-Service-
Restaurant to increase awareness about our already successful Dosa Food Truck in the
same city but a different locality. Even though our sales were only break-even at the new
location, our Food-Truck sales increased by approximately 35-40%.

I would suggest that the marketing manager at least considers this alternative to achieve
our current goal of penetrating newer markets and increasing sales.

Regards,
Pravet Kanwar

Reference:
Wang, K., & Goldfarb, A. (2017, October 1). Can Offline Stores Drive Online Sales? - Kitty
Wang, Avi Goldfarb, 2017. Retrieved from
https://journals.sagepub.com/doi/10.1509/jmr.14.0518