Retail : Online vs traditional

I received my first online shipment yesterday - a book titled "The Monster" by Michael W Hudson. Score one for online model, you would think? Not quite - I spotted the book in a bookstore, but purchased online for a price advantage. Therefore, the flipkart site could not have realised this sale without the support of the brick-and-mortar shop. It is the regular shop that sold the book to me by virtue of its display and the facility it provides for leafing through the pages. Without this, chances are I would not have purchased this book at all! 

Further, I had occasion to visit crossroads book store, where I spotted 3 lovely books - The Scam, The 2G Spectrum Scam and Building Brand India. In the first 2 titles, I get a 10-20% saving over the traditional model. In fact, on browsing a little more, I noticed price-offs upto 35% in quite a large number of titles. If you look at this transaction, yet again the initial sale has been created by the traditional model - and it is the price factor that is pulling me to the online model. The third book was not available - not just on flipkart - but anywhere on the net. At least, I did not see it. In this third example, yet again we can see that the traditional model holds relevance in the modern context.

If we analyse the above transations, we can spot some commonalities:

• The traditional model offers a superior customer interface as you can touch and feel the product. In the book category, this means you can leaf through its pages to help you in your purchase decision. This can be quite easily overcome in the online context by snapshots or teasers or chapter-one pdfs in the online store
• The traditional model also enables product discovery more easily. I mean that you can spot a book far more easily in the store- or any other product category for that matter. This is a value addition that the brick-and-mortar model provides that cannot be easily matched. Further, this has nothing whatever to do with familiarity of computer and/or internet usage, seeing as I have been working on computers for 20 years now. You can only find a product on the internet that you know exists - this is an issue with the nature of the customer interface
• Online sites can pass  on cheaper prices to customers simply because companies save on costs when they tie up with online retailers. That translates into customer discounts
• This will, of course be category specific. In categories which offer other interfaces with the customers - durables, for example- where you can contact customers through advertising and build a brand recall and image, the dynamics involved are bound to be very different. Other parameters will also matter- the more distributed the market / wider product choices and lines etc - all this will alter the business model

The point is that you will need both models in the large majority of consumer products. Each model has its own advantages and disadvantages - you simply cannot afford to ignore either model in your go-to-market strategy. In order to garner consumer eyeballs, build brand-specific choice you will perforce have to have a physical distribution model, since the customer interface is far superior in the physical model.  Not only that, there is only so much you can display on a computer screen - whereas in a store, you can literally have thousands of products on display. Furthermore, there are five senses in operation in a physical store- hence, the cues or stimuli to the brain are much greater and stronger. You pick a book in your hand - and you will recall its name and title even after a day - whereas if you see it online you cannot recall it quite so easily. This might be due to the operation of a variety of cues and stimuli to memory. There is also the addional problem of attracting the customer- in a physical setting you can use packaging innovations, POPs etc to garner eyeballs - which same will be conspicuous by their absence in the online model. And if you fail to garner eyeballs - you will lose out on sales. Physical distribution is not just about generating sales - properly managed, it becomes a vital cog in your strategy. It is a tool for advertising, building brand-specific choice, aiding product discovery, reaching as many consumers as you can. It is a powerful interface that cannot be ignored.

The above does not mean that you ignore the online model. It is a business reality, and you can ignore it only at your own peril. First off. there is already a niche market of consumers who prefer the online model over the traditional one for the convenience it offers- no wasting time going to the mall or the shopping bazaar. In product categories where you build brand choice through other means like advertising - there is already a niche market driven more by value addition & convenience of the new format (as opposed to price driven sales)- as evidenced by the successes of Yebhi, Flipkart and the likes. Next, there is the price differential that consumers gain.

Which brings me to the crucial point: what has the physical book-store gained by displaying the book in his store for me? Nothing! Today, this will not matter to him simply because online sales are in their infancy. But once sales of online stores begin threatening absolute volumes at the traditional models, this is an issue that will need looking into. Perhaps, at that point in time, the publishing houses will most likely stop discounting policies in the online stores.  Please note that I say absolute volumes - so long as the new interface is mopping up incremental sales, nothing needs to be done. But once absolute profits start declining at the traditional outlets- the pressure on the system will increase. And the decline does not have to be 40% - even a 10% fall will suffice to bring things to a boil!

It is a most interesting battle that is unfolding here...