Ideas for Leaders #527

The Unexpected Impact of Click and Collect Retail Programs

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Key Concept

When retailers started offering the ‘buy-online, pickup-in-store’ option, also known as BOPS, the assumption would be that online sales would increase. New research shows, however, that BOPS actually reduces online sales while increasing offline sales — a surprising but positive result.

Idea Summary

A website today is indispensable for any retail operation, no matter how small. The Internet is an integral part of the shopping experience.

Not every online retail experience is the same. Grocery stores might offer coupons, office supplies stores might offer coupons and the opportunity to purchase products, and sites such as BarnesandNoble.com are full-service retailers with complete inventory online.

Within the past five years, retailers started offering a new option on their websites: the opportunity to buy the product online and then pick it up in the store. The ‘buy-online, pickup-in-store’ (BOPS) was intended to overcome some of the drawbacks of online purchasing, including shipping costs and the usually long wait for delivery of the product and shipping costs.

Since it eliminated some of the big disadvantages of the online shopping experience, retailers assumed BOPS would increase their online sales. However, when professors Santiago Gallino of Tuck and Antonio Moreno of Kellogg studied a year’s worth of data from a major retail chain (which included stores with and without BOPS), they discovered that BOPS was having a completely unintended effect: online sales in areas where BOPS was available actually decreased, while bricks-and-mortar (B&M) sales in those areas increased. Because the increase in sales in traditional stores was greater than the decrease in online purchasing, BOPS had a positive impact on results…. just not in the way intended.

Some of the increase in B&M sales could be explained through cross-selling: customers bought a product online and then bought other products once they were in the story to pick up the original purchase.

That was only part of the story, however. In the areas where BOPS was available, online purchasers were putting items in their carts but not following through on the purchase. Instead, the research showed, they would buy the product at the local store. This led researchers to identify another customer behaviour, which also comes with an acronym: ‘research online, purchase offline’ or ROPO.

In short, customers were using the BOPS function as a means to research whether the product was available; once reliable availability was determined, the customers purchased the item once they had the opportunity to physically interact with the product (see it, pick it up, try it on, etc.) in the store. 

Business Application

There are a number of important management implications which can be derived from this research:

  • A multichannel initiative will have a significant positive financial impact. The effect may not be as straightforward as expected, however: a multichannel initiative will have a multichannel impact.
  • Evaluating a multichannel strategy must be approached holistically. For example, a cost-benefit analysis of a BOPS experiment, which at first glance might show a decrease in online sales, could be misleading if the retailer does not take into account increases in in-store purchases. Unaware of the net increase in sales, the retailer might erroneously shut down a lucrative program.
  • Incentivizing a multichannel strategy also requires a holistic perspective. This research also reveals some of the compensation challenges of multi-channel distribution. The online sales team might be under-compensated if their contribution is not viewed from a more holistic (i.e. online and offline) perspective.
  • A new multichannel program can raise unexpected operational issues. In this case, the launch of an online program generated an unexpected channel shift to B&M stores. Both inventory and staffing decisions at the stores had to be reconsidered.
  • Multichannel programs can lead to unexpected value for customers. While BOPS was expected to give customers the opportunity to avoid wait times and shipping costs, customers were more interested in the opportunity to shop for products and check their availability (since the store is ready to commit to near-immediate pickup from purchasers, this availability information is extremely credible). Even those who used BOPS as it was supposed to be used were more interested in availability than speed: the data shows that only 28% of customers pick up their purchases within 2 days.
  • Customers are dealing with one company. Internally, the online and offline activities can be seen as two separate businesses. The creative use of BOPS as an inventory check shows that customers see the company as one entity. In the customer’s view, the online presence is not a short-term initiative with short-term profit pressures, but a natural component of the company with which they are doing business. In short, multichannel distribution is unavoidable and here to stay.
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Authors

Institutions

Source

Idea conceived

  • June 2014

Idea posted

  • June 2014

DOI number

10.13007/527

Subject

Real Time Analytics