Consumers Combine Web and Traditional Stores When They Shop

Mixing online and offline shopping is essential to the multichannel habits of today's consumers.

October 22, 2002

| by Cherian George

More people than ever are making online shopping trips, but they also visit the mall and browse catalogs. Far from being wedded exclusively to the Internet, online customers are weaving the medium into their traditional shopping habits, according to Professor Haim Mendelson, codirector of the Stanford Business School’s Center for Electronic Business and Commerce.

“The predominant way people use online media is as part of a multichannel activity,” he said Oct. 18, as he delivered the Sloan Distinguished Faculty Lecture at the school’s 43rd Annual Alumni Weekend and Reunions celebration.

He argued that just as the rise of electronic commerce was over-hyped, so is news of its decline. Despite the dot-com collapse, there has been no crash in product sales online, he said.

Of course, there have been some spectacular failures. He cited the examples of Webvan, the online grocer, and, the pet supply e-merchant, both of which closed down after rapidly burning up their investors’ money.

The more successful online retailers are those who understand the “multichannel” habits of today’s shoppers, said Mendelson, who is the General Atlantic Partners Professor of Electronic Business and Commerce, and Management at the Business School.

Britain’s Tesco supermarket chain, for example, decided to use its existing stores to fulfill Internet orders, rather than building the dedicated warehouses that were part of Webvan’s costly gambit. Safeway in the United States is adopting Tesco’s online system.

The model also takes advantage of information about a customer’s purchases at the physical supermarket: It is captured through his or her privilege card and used to personalize the website, with favorite items displayed more prominently. “They are leveraging the physical store,” Mendelson said.

Another traditional retailer that has learned how to mix offline and online channels is Wal-Mart. Its film developing service, for example, allows customers to drop off a roll of film at one of its stores and collect digital images on its website. Conversely, Wal-Mart allows customers to order digital cameras online for pick-up at a convenient store. This makes sense, he said, because camera purchasers often know more about model features than do store clerks.

Industry figures suggest that, overall, almost one in five Internet users who go to a retail store also visit its website, and more than two in five who go to an Internet store also will enter its brick-and-mortar outlet.

Similarly, customers go back and forth between print catalogs and Web sites. Thus, catalog clothing company Lands’ End sees its online sales peak after each mailing: Shoppers browse its colorful catalogs, then go to their computers to make purchases.

E*Trade Financial is another company that has learned the value of multiple channels. Starting out as an online stockbroker, it has diversified by setting up an offline banking operation. It has become the country’s third largest operator of automated teller machines. Brokerage transactions now account for less than one-quarter of E*Trade’s business, down from more than 80 percent in 1996.

E*Trade now has a growing mortgage business. More homebuyers are turning to the Internet to compare rates and even buy a mortgage, Mendelson noted. Automobiles are another big-ticket item that is being marketed and traded online. In the past year, more than 70 million people have used the Internet when buying a car.

In one respect, online shopping differs significantly from going to the store: Surveys show that the most popular time to do it is around 9 a.m. on Mondays. People seem to be planning their shopping over the weekend but doing it in the office when they return to work, the professor said.

Asked about the prospect of sales taxes being levied on e-commerce, Mendelson said that this need not be a bad thing for the industry. The discipline could even help companies grow stronger. “In some ways it is better for the business if from day one you have to meet the same hurdles as everybody else,” he said.

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