How is online-to-offline selling options worth? According to Alibaba, it’s enough to eliminate discounts and sales as a selling strategy for those products.
The shift in strategy has implications for both shoppers and merchants who use Alibaba. According to its older strategy, lower prices attracted a larger consumer base, and that increased volume of sales appealed to merchants — meaning they would agree to discounts in exchange for a higher number of sales.
But Alibaba has recently struck out against that strategy, saying it’s a bad deal for merchants, and that consumers are motivated by other considerations than only the cost of a product. Instead of discounts, the Chinese selling giant plans to focus on marketing data that can illuminate consumer shopping habits, demographic trends, and other information.
Merchants can then combine this data access with online-to-offline selling opportunities, increasing their in-store sales traffic without discounting their profit margin. Forbes argues that Alibaba’s strategy is built upon the recent failure of Groupon to win over a dedicated audience, even in spite of its low prices.
It’s possible that discount-minded shoppers are likely to chase down the lowest price, regardless of the retailer. But Alibaba also sees the value of an engaging, branded experience as a better opportunity to build a sustainable base of customers.
Will Consumers Buy In?
In a sense, Alibaba is betting that other aspects of its shopping experience will outweigh the attraction of discounted prices, which the company thinks is not a safe long-term strategy.
Not everyone is on board with the aggressive move. Forbes cites experts on retail selling that believe consumers are still motivated by discounts more than anything else. One China-based market research expert believes that O2O selling is still at a discount-driven stage, likely because it is new and unfamiliar to many consumers.
Even if those experts are right — and Alibaba’s strategy fails to impress consumers — it’s possible those tendencies will change over time. As O2O becomes more familiar, and its benefits more easily understood, shoppers may come to appreciate the selling and shipping options and value them more than other purchase motivators, including price.
Already, brick-and-mortar retailers in the U.S. are leveraging the value of in-store shopping experiences as a counter to the lower prices offered by online-only retailers. That strategy has proven viable. The question is whether a new selling technology can gain traction with consumers when they’re having to pay more for the service.
There’s no question O2O will play a strong role in the future of retail. The challenge retailers face is delivering that experience in a way consumers are ready to embrace.
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