Reach Out And Touch Someone

With the holiday shopping season upon us, online and offline retailers seem engaged in a sort of celebrity death match.

At the more rational end (rational being a relative term here), we have online businesses on a quest for brand awareness through commercial airtime – emptying dump trucks full of venture capital into the coffers of traditional media companies. On the surreal end, we have Yahoo subsidizing parking garages for downtown holiday shoppers. (Enjoy the convenience of online shopping by driving to a parking lot? Could we possibly mix messages any more?)

Offline retailers aren’t taking this sitting down. Although online retail constitutes a small fraction of retail revenues, a comparison of marketing expenditures between online and offline businesses provides a wholly different perception.

In the San Francisco area, a TV commercial for a major shopping mall makes threatening references to computer viruses to deter online shopping. A mall in St. Louis recently informed its 170 retail tenants of a new policy prohibiting any in-store promotion of e-commerce.

Despite all this, online and offline retailers have a lot more in common than either seem ready to acknowledge. Yet while offline retailers have been repeatedly told to develop online strategies or face extinction, few online retailers have given serious thought to their offline strategies.

Pay No Attention To The Man Behind The Curtain!

We’ve all heard the virtues of running a pure-play Internet business: e.g., low overhead, inexpensive real estate, improved inventory management, and the potential for “zero-gravity” commerce. But unless you are a media or software company where your entire product or service line can be shipped as bits, you had better think long and hard about your offline strategy.

Despite all the hype about cyberspace (gag), the fact remains that all of us live in a physical world. The virtual world matters only where it touches our lives in the physical realm. Thus the impact of this link can either be weak (e.g., interaction through a keyboard and a computer screen), moderate (e.g., the receipt of physical goods), or strong (e.g., an online dating service).

Online retailers’ recent emphasis on improved customer service and customer relationship management (CRM) systems underscores this point. Most e-commerce sites have been notoriously faceless, impersonal, and distant ivory towers. As one investment banker put it to Greg recently, “E-order-taking is not e-commerce.”

It’s Not Personal, It’s Just Business

The need for Internet companies to develop offline strategies is also becoming more apparent. Recently the San Francisco Chronicle reported on the phenomenon of bricks-and-mortar encroachment by online businesses (e.g., Drugstore.com teaming up with Rite Aid, Gazoontite opening physical stores) and Internet World discussed the acquisition of traditional companies by online businesses.

In this era of experience marketing, being an online-only business can severely restrict your customer relationships. If you’re Amazon.com, given the point where you most closely touch your customers’ lives, do you really want your “brand ambassadors” to be uniformed government workers whose profession has become a verb for “assault with a deadly weapon?”

However, offline strategies offer more than better management of your image and the depth of your customer relationships. Offline and online businesses address slightly different consumer needs. Therefore, leveraging one to expand into the other provides additional revenue streams with some economy of effort and infrastructure.

For example, pure-play Internet drugstores garnered the spotlight this year for their convenience and selection. But as Michael Porter, a Harvard Business School professor, noted in an Interactive Week interview, more than half of all prescription drug purchases are not planned. Physical drug stores stand to capitalize on these immediate needs much more than their online-only counterparts.

And We Can Type 50 Words Per Minute

“So what about home delivery?,” you say. Certainly Internet companies such as WebVan and Kozmo.com seem better equipped for hand-offs between the virtual and physical worlds.

We’d argue that neither WebVan nor Kozmo.com are Internet companies anyway – despite the benefits of an Internet spin for their investor relations. (Well, at the least they are no more Internet companies than, say, FedEx.) Being in the business of delivering groceries or movie rentals, the Internet shouldn’t factor into their core competencies anyway.

Ideally, they should be able to perform their service whether contacted via phone, fax, computer, Internet-connected refrigerator, or wireless pager. Any company that claims the Internet as a strategic strength may as well consider making and receiving telephone calls as a core competency.

Although You Might Say Jesus Christ Invented Cross-Training

If for no other reason, online and offline cross-training are essential because eventually business will not discriminate between the two.

The Internet provided some ephemeral advantages to new businesses nimble enough to exploit them, briefly creating a trap-door entrance into the ranks of the commercial elite. But the cat’s out of the bag. As Internet business has proliferated, it has withheld fewer and fewer secrets.

As Bong Suh, former CEO of BuyDirect (since acquired by Beyond.com) once told Greg last year, “the business makes more sense when you take the ‘Internet’ part out of it.” It’s only a matter of time before all businesses – online and offline – think that way.

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