1.1Research Background
What do Groupon, McDonald's surprise alarm app and Yahoo chaoji shangcheng’s ecommerce application (app) have in common? They find consumers online and bring them into offline stores for offline services. The Groupon website (Kim, 2015) persuades online shoppers with various types of coupons and drives them to purchase from its offline partners. McDonald 's surprise alarm app (AsiaOne, 2014) allows customers not only to wake up on time but also to receive an opportunity for a discounted breakfast. In Taiwan, Yahoo chaoji shangcheng ecommerce has developed an app to send information about discounted products to shoppers’
smartphones through location-based service (LBS) technology and drive those shoppers to purchase in nearby stores (Horwitz, 2014). In the modern era, several Online-to-Offline (O2O) practical cases appeared in our surroundings. According to the Forrester Research Report (Mulpuru, 2014), "Web-influenced sales" means that online marketing and research will prop up sales in physical stores. The report also estimates that online and Web-influenced offline sales combined represented 42 percent of total retail sales in 2009, a percentage that was predicted to grow to 53 percent by 2014, when the Web was predicted to influence
$1.4 billion worth of in-store sales (Schonfeld, 2010). The MIT Technology Review report (Regalado, 2013) has also learned that 80% of shoppers prefer to check product prices online. This information tells enterprises that consumer purchase behavior has evolved: consumers rely on a great deal of online information before making a purchase decision. Today, marketers develop various types of digital marketing strategy, such as releasing digital coupons, optimizing search results and utilizing LBS technology, all of which attract customers to offline stores.
Consequently, the number of O2O applications has been growing daily.
In the meantime, offline to online businesses are also growing. TechCrunch, a study (2010) of consumer behavior in the U.S., notes that although frequent shoppers buy products online in the U.S., there remain a large number of frequent shoppers who spend their money in offline stores. This phenomenon represents a new opportunity for traditional offline companies to transfer their marketing strategy to the online world. This type of offline-to-online model has flourished recently: for example, Macy's places a QRcode on each of its products, thus
allowing consumers to scan those products and quickly obtain information online before they purchase. Walgreens, in cooperation with Foursquare, locates consumers who are near their offline stores and then sends them coupons to drive them to make in-store purchases. McDonald's surprise alarm app offers coupons to consumers: when the app wakes them, customers receive a discounted breakfast in offline stores.
Whether online-to-offline or offline-to-online, China’s ecommerce markets are experiencing exponential growth. Consider, for example, the most popular ecommerce company, Alibaba. That company has prompted numerous physical stores to go online, enabling business (B2B) and business-to-customer (B2C) transactions over the Internet and delivery of goods through offline logistic services. According to iiMedia Research (2012), The Chinese O2O market reached 98.7 billion yuan (approx. US$15.8 billion) in 2012, representing a growth of 75.5 percent from 56.2 billion yuan (approx. US$9 billion) in 2011.
This study defines the O2O business model based on previous literature. An O2O business model connects offline business opportunities with the Internet, situating the Internet as the front counter of offline trade (Yingsheng et al, 2014).
Zhang (2014) notes that the O2O business model is characterized by its information flow and cash flow online and its logistics and commerce flow offline.
With the rise of mobile technology, Margaret Fitzgerald (2012) states that the O2O business model uses online and mobile technology to drive offline local sales or redemptions. In simple terms, O2O is offline purchasing propelled by the Web. To summarize the different aspects of an O2O business model, this study defines that business model as a combination of offline business and online commerce, online websites or mobile technology, which results in offline purchases or fulfillments.
Online commerce not only provides information and services but also offers discounts. The actions trigger information flow or cash flow happened. Offline businesses include physical stores (e.g., a department store, a convenience store, and so on) and service in the real world. The service causes either logistics or commerce flow happened, and possibly creates more store-traffic and transactions. Because the growth of the O2O market is inevitable, firms must focus on building a seamless experience between the online and the offline to acquire and retain customers.
1.2 Research Motivation
In recent years, industries have been confronted by great changes brought about by the Internet, and O2O strategy is an emerging pattern in this regard. There are several types of O2O business models. One type of O2O business model is exemplified by companies such as Amazon, eBay and Spoon Rocket, all of which provide a wide selection of products on the Web. Customers place an item into a shopping cart, submit the order and then wait for delivery. These companies now offer pick-up service in offline stores so that consumers can retrieve their items from local stores. Another type of O2O business model involves ecommerce companies that sell non-digital products (Bell et al, 2014)—for example, apparel and related categories that involve fit and feel, or products that involve taste and texture—for which customers value a physical inspection. Such business include Ebay Fashion app, Tissot Reality and Warby Parker, which provide a try-on service to allow customers to experience items, thus reducing uncertainty and increasing willingness to buy. Digital promotion marketing has become both popular and common. Starbucks Taiwan offers digital coupons in many places on the Internet to provide customers with buy-one-get-one-free deals in offline stores. Retailers such as Walgreens, Target and Yahoo Taiwan chaoji shangcheng ecommerce also attract consumers to purchase in retail stores by offering coupons on their Websites or mobile apps. Traditional offline companies have begun either to create websites or to develop mobile apps with integral product information, thus simplifying the buying process. For example, eBay-RedLaser’s barcode scanning technology allows users to compare products' prices (offline). Users scan a barcode on an item at a store and then automatically access eBay listings of the product in the marketplace (online). The RedLaser App allows offline users to find a desired product in a nearby store at a lower price through LBS technology or to purchase the product on eBay. (Brynjolfsson et al., 2013). The final type of O2O business model is one in which ecommerce companies serve as a platform to match the demand- and supply sides, creating a network of individuals to share a resource. Prominent companies that use this business model include the accommodation platform Airbnb, the private taxi service Uber, and the coupon service Groupon. Many companies also offer car rentals, office space, money lending, venture capital and professional and personal services.
As seen from the above cases, the various types of O2O business models have been adopted across the retailing, apparel, accessory, and food industries. All of these models were all developed by various types of firms, leading to different implementation methods and effects. Therefore, there is a need to understand the different types of O2O business models. In the Internet era, it is critical to understand that customers’ shopping preferences have become dynamic and changeable. They want not only the advantage of online shopping, such as a wide selection, recommendation mechanisms, product reviews and ratings, but also the advantage of offline stores, such as no waiting time, customized service, and a touch-and-feel experience. Another O2O-related risk is the uncertainty of inventory in offline stores. For example, GAP allows consumers to select and then reserve five items in an online order. Later, customers try on the items in-store and make a purchase decision. GAP stores must be accessible to customers and must hold the inventory. This sharply reduces the risk of mis-supply. Seamless online and offline integration is another concern of O2O projects (Chu, 2013).
Apple established its online and offline channels as entirely separate organizations. Fortunately, thanks to Apple’s innovative products and unparalleled service, it did not make enormous mistakes. However, customers begin to expect more from the company. Apple upgraded its collaboration between its online and offline businesses, enabling sales staff to check a store’s inventory and reserve items online for in-store purchases (Rigby, 2011). Apple also redesigned its store environment, replacing information cards near demonstration products to give consumers an integral offline service. To succeed in O2O projects, as demonstrated by the above cases, firms should consider CSFs when building O2O business models. These factors might involve technology, management, and organizational dimensions. These needs lead us to consider the critical factors for building a successful O2O business model.
1.3 Research Objectives
Before companies invest more time and money in developing and deploying the O2O business model, the following questions should be asked: What role do I want the O2O business model to play in my business brand? How should I develop the O2O business model? How can I bring online shoppers into the store and support offline sales? What factors related to making an O2O plan should concern me? How
can I convert Internet users into offline customers? Due to less discussion in the previous literature, this study will provide businesses with answers.
The objective of this study is to build a deep understanding of the practice and management of the O2O business model. The key questions are as follows:
What are the types of O2O business models?
What are the CSFs for building O2O business models?1.4 Research Process
The remainder of this paper is organized as follows. First, this article developed an online and offline framework based on a review of literature and business cases in the relevant years. Next, this study contributes 5 simple types of O2O business models and develops a CSF research framework for each type of model. This research will enable businesses to examine their O2O strategies.