ISBInsight: What is omnichannel retail?
Murali Mantrala: The advent of online retail websites, marketplaces and additional digital platforms such as mobile phone shopping apps and social media, has transformed the world of retailing by providing multiple avenues for sellers to connect with buyers. As a result, the term ‘Omnichannel’ has gained currency over the last six years. This trend signifies the abilities and dispositions of contemporary consumers to crisscross and avail of the multiple channels at various stages on their ‘paths to purchase’ for products and services.
From the mid-90s to the beginning of the current decade, there has been a major shift from the traditional single-channel brick and mortar and catalogue retailing perspectives to a ‘multichannel’ retailing world that viewed brick and mortar, direct marketing (catalogue) and fast-growing online retailing as alternative modes for sellers to reach their targeted consumers. These were considered as separate channels with different objectives with little or no overlap. The brand manufacturers could choose one of these channels or ‘hybrid’ combinations to employ in different markets. The underlying assumption was that different segments of consumers will choose to shop through different channels. Little did they realise that most consumers may choose to utilise all the aforementioned channels while shopping for a product.
However, the evolution and spread of smartphones disrupted this mindset and changed the world of retailing forever. It enabled consumers to access information and choices available in both the digital and physical retail platforms at the same time. The advent of smartphones revolutionised omnichannel retailing by allowing consumers to explore, consider, evaluate and compare the choices available across multiple channels while buying a product. This consumer behaviour compels all retailers to think about how to manage and influence interactions with consumers across multiple touchpoints in different channels in order to win their business.
(Verhoef, Kannan, Inman 2015).
How is Omnichannel retail different to traditional retail, multichannel retail and e-commerce?
Murali Mantrala: Retail e-commerce and omnichannel retailing are not synonymous although they tend to be used interchangeably in many commentaries and discussions. More specifically, ‘retail e-commerce’ refers to retail transactions based on an online website and/or e-marketplace. On the other hand, omnichannel retailing is about managing your customer journeys and interactions across multiple channels where the ultimate purchase may not even be online. ‘Omnichannel retailing’ is a way of customer management while ‘retail e-commerce’ is a mode of retailing that involves electronic or digital interactions and transactions.
IKEA has launched its online store in Mumbai before the brick and mortar store there. What does such a decision say about how organisations are viewing omnichannel retail opportunities in India?
Manish Gangwar: IKEA recognised that the Indian consumer market is vast, diverse and heterogeneous. The distribution of different market segments varies across geography. Mumbai has a larger consumer base of urban millennials and other professional groups who prefer to shop online and avail home delivery. Hence IKEA first launched an online store in Mumbai before establishing an offline store. The online store in Mumbai was conceived by IKEA as a part of its emerging multi-channel digital-first retailing strategy. They plan to construct smaller format brick and mortar stores and a larger retail establishment in Navi Mumbai in the coming years. So, clearly, IKEA is not immediately thinking about exploring omnichannel retail opportunities in the whole of India. Instead, they are focusing on offering online and offline channels separately, keeping in mind the needs of various market segments. However, it is quite possible that an omnichannel retail strategy may become best suited to address the needs of Indian consumers in future. The size of single-brand retail market in India attracts international retailers in general. It seems that IKEA’s decision to run both online and offline stores in India is informed by such opportunities that the Indian consumer market presents.
What kind of policy initiatives have supported omnichannel retail in India and where do you see some gaps?
Manish Gangwar: In India, Government policies and investments in telecommunications, internet infrastructure, mobile phone networks, digital identification and digital payments in recent years have contributed to the growth of retail e-commerce and omnichannel retailing. Roads and transportation infrastructure that support omnichannel shopping behaviour are steadily being improved across the country. As the country tackles the ‘last mile’ delivery problems in various product categories like groceries, omnichannel retail is bound to flourish. India, however, still requires important modifications in its e-commerce policy to unleash its full potential. Some of the main constraints on the growth of omnichannel retail appear to be centred around regulatory policy-related issues. These include limiting Foreign Direct Investment (FDI) to mainly single-brand retailers and consumer privacy-related ban on mandatory disclosure of their digital identification (Aadhaar numbers) in payment transactions.
What is the relevance of omnichannel in the local Indian context? What lessons can we learn from more established practices for example in the US market?
Murali Mantrala: Omnichannel shopping is extremely relevant in the Indian context where consumers’ disposable income is limited and quality of merchandise in many categories is often called into question. In such an environment, it is important for consumers to have access to multiple channels of information as they proceed along their shopping journeys. Omnichannel options like ‘BOPS’ (Buy Online, Pickup in Store), ROPO (Research Online, Purchase Offline), Order Online, Return Offline’ etc. are all relevant and will grow in India. Indian consumers traditionally shopped at off-line stores with cash. On-line stores lacking physical presence faced the challenge of gaining the trust of consumers. Collecting payments online from consumers who do not have a credit card or other means to transfer money online was equally challenging. Many have overcome this problem by undertaking home delivery with payment by cash on delivery, a rather unique Indian innovation, that tackles the issue of trust.
About the Interviewers:
Debdatta Chakraborty is Research Editor and Yogini Joglekar is Managing Editor at ISBInsight, the flagship research periodical of the Indian School of Business.