In our last post, we highlighted broad level retail categories for US market in 2010. We also observed how few particular categories have emerged differently in offline and online retailing.
Observations
- Top 3 largest categories (Food & groceries, motor vehicle & parts, furnishing) contributing ~50% to total retail have least online penetration and contribute just 19% to overall online retailing market.
- Top 3 smallest categories (Books, hobby & toy, electronics & appliances) contributing ~4% to total retail have highest online penetrations and contribute 33% to overall online retailing market.
- Apparel category does not have a very high online penetration (~13%) but contributes 17% to overall online retailing market.
Having such observations, we thought it would be interesting to understand what makes certain categories click online. To be a successful category in online, business model should make sense (otherwise pricing would be affected) and customer value should be enhanced or customer should have similar experience to offline shopping. For example- if a customer wants to touch & feel certain product, online selling of that product will be difficult. So, we tried to break all categories into value for the customer value and business model for the company and analyzed different attributes of each category.
|
Category |
Impact on customers |
Value to customer |
Business Model |
Value to business |
|||
|
Touch & Feel |
Delivery Time |
Margins |
Ticket Size |
Shelf Life |
|||
|
Books |
Low |
Low |
Highest |
High |
Low |
Average |
Average |
|
Hobby & Toys |
Low |
Low |
Highest |
High |
Low |
High |
Average |
|
Electronics & appliances |
Low |
Average |
High |
Low |
Average |
Average |
Low |
|
Apparel |
Average |
Average |
Average |
High |
Average |
Average |
High |
|
Health & personal care |
Low |
High |
High |
Average |
Low |
Average |
Low |
|
Furnishing & hardware/ building supplies |
Average |
Low |
Low |
High |
High |
High |
High |
|
Motor vehicle & parts |
High |
Low |
Average |
Low |
High |
High |
Low |
|
Food, beverages & groceries |
High |
High |
Lowest |
Average |
Low |
Low |
Lowest |
Source for margins: http://interstratics.com/interstratics-home/2010/3/13/retail-gross-margin-comparison.html
Next, we plotted each category on a 2X2 matrix of customer and business centric axes.
From the graph and observations, it is evident that online retail is better able to penetrate in categories which have higher value to customers. So books, hobby & toys and electronics & appliances are top 3 online categories while furnishing & hardware, motor vehicle & parts and food, beverages & groceries are least favourite categories in US.
Obviously, this analysis doesn’t include availability as an attribute. But, if a product is available only through online channel, it enhances the customer value drastically.
What are your views?
Authors
Pankaj Garg: Pankaj is currently an entrepreneur in K-12 education space and has worked extensively in payment and loyalty space in India. He is class of 2012, Sunstone Business School and a graduate from IIT Kanpur
Pragati Dhingra: Pragati has worked for various technology companies such as Microsoft, Samsung, Sapient in the past. He is class of 2012, Sunstone Business School and a post graduate from IIT Guwahati
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This is a good approach to analyses what categories are better placed for online retailing. Further I think value to customers and business is dynamic in nature in this form of retail and would be shifting towards right in future.