Wednesday, October 1, 2014
Companies, Customers, and the Online Marketplace
The power of high-speed Internet connection is redefining the retail market for consumers and companies. The retail marketplace has now transformed into an online market place, creating vast networks linking buyers and sellers with unheard-of efficiency.[i] Naturally, in the online marketplace companies and consumers are entering with two different goals. For companies the goal is to maximize supply chain efficiency, while for consumers the focus has become customizing an individualized retail experience.
Today’s retail experience is reliant on the increasingly inseparable online and in-store experiences. Take Home Depot for example, today about half of their customers go to HomeDepot.com to research products before making an in-store purchase, one-third of online orders are picked up by customers at a physical store, and about 35 percent of online sales traffic this year will come through mobile phones and tablets.[ii] With this shift to online increasing, many companies like Home Depot are realizing that “customers aren’t concerned about whether a product came from a direct fulfillment center or a store.[iii] They are concerned with getting the product within the time they were told they would receive it. To meet the expectation of customer’s, companies are using a centralized electronic commerce (e-commerce) fulfillment plan to help improve its supply chain utilization, and lower overall transportation costs.[iv] The plan, however, is not easily implementable, due to the need to balance expanding online business with traditional storefronts and configure supply chains for optimal support of both. However if successfully implemented this strategy will speed up the flow of online orders significantly, cutting shipping time from three to five days to two days.[v]
The current generation of customers has grown up with the Internet; therefore they are expecting a personalized retail experience, due to the Internet’s personalized delivery of information and recommendations. Industry estimates indicate that online retail sales in the U.S. will grow to $370 billion in 2017 from $262 billion last year, increasing at a 10% compound annual growth rate over the next five years.[vi] Similarly, European online retail sales are expected to increase to approximately $262 billion by 2017, while China is expected to sell $650 billion in goods online annually by 2020.[vii] Much of the growth that is anticipated is correlated with the allure of the individualized customization experience that companies are increasingly offering.
Through customization companies can increase revenue and gain a competitive advantage, improve cash flow, and reduce waste through on-demand production. [viii] The customization that online retail shopping provides allows customers to build uniqueness into their product of choice—whether it be picking a specific color, textile, or logo. But most importantly, customization can generates value for the customer in both a configured and individualized ways. However, in order for customization to yield success, companies must understand what customers want to individualize and what do they want to configure. Once this is determined companies have to decide which options should be offered and how they should be priced. To make these big decisions companies lean on the valuable data that customization generates. Moreover, customization data is a useful instrument in the development of standard products and in online marketing and public relations efforts.
Interior designer Shelia Bridges is an example of customization at work. Bridges took on the challenge of furnishing a Martha’s Vineyard beach home almost entirely online.[ix] Bridges was able to better zero in on the items that she needed—and substituted the color of items, to establish a preferred color scheme—online. Bridges’ experience highlights that online shopping now has the ability to reshape how one does their job, shifting customers away from needing items to be physically tangible before being purchased. One can argue that the customization experience gives customers a sense of confidence in their decision-making abilities. An assertion closely in line with that of companies, who have been very intentional in supporting online customization; to the point that even interior designers can perform a vast majority of their client related shopping online.
Ultimately, many companies have realized that “if you can’t grow the top line, you can save money through improving bottom-line business efficiency issues like managing cash flow, which is a big incentive to using electronic commerce.”[x] An approach that fosters an online marketplace that values the customer’s need for a customizable shopping experience based on stylistic preferences and needs. E-commerce and customization have shown positive upward trends for both consumers and companies alike, over the years, but one cannot help but wonder what the future implications are for companies that are not able to find the balance between their storefronts and online retail or even companies that cannot provide a wide array of options to support customization needs?
[i] For An Online Marketplace, It’s Better Late Than Never (New York Times, November 20, 2010)
[ii] Home Depot’s New Strategy Tied to E-Commerce Growth (Journal of Commerce, August 18, 2014)
[iii] Home Depot’s New Strategy Tied to E-Commerce Growth (Journal of Commerce, August 18, 2014)
[iv] Home Depot’s New Strategy Tied to E-Commerce Growth (Journal of Commerce, August 18, 2014)
[v] Home Depot’s New Strategy Tied to E-Commerce Growth (Journal of Commerce, August 18, 2014)
[vi] Home Depot’s New Strategy Tied to E-Commerce Growth (Journal of Commerce, August 18, 2014)
[vii] Home Depot’s New Strategy Tied to E-Commerce Growth (Journal of Commerce, August 18, 2014)
[viii] How Technology Can Drive the Next Wave of Mass Customization (McKinsey Quarterly, Winter 2013)
[ix] Point-and-Click Decorating. (WSJ, September 17,2014)
[x] For An Online Marketplace, It’s Better Late Than Never (New York Times, November 20, 2010)