Scale Strategy for Electronic Businesses

“For retailers with a strong online footprint, is a strategy focused on opening brick-and-mortar stores an alternative to the ‘scale strategy’ common in many electronic businesses? Please elaborate, reflecting different aspects in your answer.”

Electronic businesses require scaling to reach a larger customer base thereby leading to more conversions and higher revenue. The typical advantages of online scaling are low fixed costs as compared to opening physical stores, gaining insights to customer behavioural analytics, gathering more customers to visit site, to offer a visible platform and in turn more conversion rates. Online retailers also have the advantage of offering more diversified product range than typical brick and mortal stores. To scale online, electronic businesses typically make a trade-off between revenue and more traffic in the initial years. To reach a higher customer base and attain higher scale, online retailers usually spend a considerable percentage of their total revenue on marketing. Once they reach a higher scale marketing expenses decline gradually.

Brick and Mortar stores are physical stores with limited storage capability. They cannot offer “long tail” as compared to online retailers. To reach a higher scale brick and mortar stores need to open shops at proper locations to attract more customers. Sales representatives of stores need to have certain behavioural qualities to interact with customers and help in increasing conversion rates. However, we have seen online retailers like “Amazon” and “Zalando” gradually opening physical stores to reach a higher customer base. The main aim of scaling to attain a higher market share and hence gain higher revenues. As per Brendan Witcher, principal analyst at Forrester, “Many customers want to have an experience that allows them to hold and touch and, in some cases, try on the products”. Data from PWC’s Global Consumer Insights Survey from 2018 confirm that physical shopping is still important to consumers. A growth in the number of weekly brick and mortar shoppers has been observed in the last years. Number of customers have increased from 36% of respondents in 2014 to 44% in 2018 (PWC, 2018). “Retailers with strong online footprint” have multiple advantages of opening brick and mortar stores at proper locations. They have the capability to customize their stores through knowledge gained from customer purchase behaviour online. Moreover, brick and mortar stores and electronic businesses complement each other rather than substituting one another. Opening offline stores offers a business to offer rooms for channel migration namely “showrooming” and “webrooming”. They need to ensure that the migration happens within the same ecosystem. Creating an omni channel system helps online retailers to attain to a higher customer base. Brick and Mortar stores along with online have the advantages of catering to different customer segments (internet users and non-users) by enabling multi-channel shopping and providing them an integrated experience. Having physical stores help online retailers to cut on logistics costs. It is easier to offer in store pickup if there are self-owned physical stores. Return policies in physical stores will be more lenient and customers can return in stores. Usually return rate for online retailers are high and so is the associated transport costs. Offering customers a chance to return shipment to stores can help to significantly cut logistics costs. Personal relationship building can also be done better through face to face interaction. There is a chance that customers returning purchased goods to physical stores will immediately opt for a substitute. This lowers the chance of migration to different platforms as