What categories are better penetrated by online retail?

August 2, 2012
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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

  1. 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.
  2. 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.
  3. 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 GargPankaj 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 DhingraPragati 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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Comments

  1. Aditya Gupta says:

    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.