Communications of the ACM

Virtual extension

The Hybrid Clicks and Bricks Business Model

By Pattarawan Prasarnphanich, Mark L. Gillenson
Communications of the ACM, December 2003, Vol. 46 No. 12, Pages 178-185
10.1145/953460.953498
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With the advent of the Internet, retail business attracted a myriad of new online pure players employing a clicks-only business model. In the early stage of electronic commerce, many of these "e-tailers" achieved stunning growth rates and had massive revenue streams. Online retailers such as Amazon.com and CDNOW.com, led the way as startups that showed how to utilize the extraordinary Internet capability to become successful in Web-based electronic commerce. Unfortunately, many of these early online companies, including such high-profile firms as etoys.com and garden.com, have folded. In many cases they lacked several critical capabilities required to make profits in the short and long run, such as superior maintenance and customer services, and logistics capabilities required in the real, physical world [12]. Further, lack of brand awareness, lack of consumer trust, and an established customer base proved to be a crucial drawback, pressuring the dot-com startups to invest in massive marketing campaigns to attempt to compete with traditional retailers, now known as bricks and mortar businesses.

To further complicate the start-ups' lives, they began to face the revenge of the bricks and mortar retailers, many of which initially took a wait-and-see approach to Internet retailing but eventually joined in. The built-in advantages of brick-and-mortar retailers, in terms of brand awareness and existing large customer bases, enabled them to take advantage of online shopping when they were ready for it. Traditional retailers, such as Staples, Best Buy, and The Gap, eventually added an online retail capability and established their presence on the Internet. These traditional retailers are said to be employing a "clicks and bricks" hybrid business model that combines the strengths of the digital and the physical elements of business. This hybrid business model, blending Internet and physical activities, is very compelling. A study by Jupiter Communications Inc. reported that in 2005, U.S. online customers will spend more than $632 billion in offline purchases. This study asserts that customers will use companies' web sites for searching for information about products and performing product comparisons, then ultimately go to physical stores to make the actual purchase [2].

It is evident that the unique advantages of virtual stores and those of physical stores are too important for either to be overlooked. Merging the strengths of the physical storefront with those of the virtual storefront would offer customers the best shopping experience in both the online and offline worlds and would ultimately provide the best benefits to clicks and bricks businesses (Figure 1).

This article brings together a variety of hybrid clicks and bricks techniques that companies have experimented with and suggests further techniques and methods of integration that forward-looking companies should consider. It is the first time these concepts have been compiled into an organized list, suitable for consideration for usage and further study. Traditional companies can consider these techniques as ways of advancing into the Internet world while leveraging their existing capabilities. Web-based companies can consider them in the context of developing a traditional commercial presence or of collaborating with traditional companies.

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Seamless Integration of Online and Offline Capabilities

Clearly, businesses with only a pure Internet presence or only traditional bricks and mortar stores are at a disadvantage in the new retail environment. This is even true of businesses with both capabilities that have not integrated them, an example of which is Hollywood Video, whose online movie sales are handled by Reel.com. Only businesses fully integrating online and offline activities will be the real winners (Figure 2). In this integrated clicks and bricks environment, assets and resources are shared between the online and offline worlds and the Internet is viewed as a complement to the traditional approach to competition. In it, retailers make customers view online or offline efforts as a single brand regardless of channels [9]. For example, The Gap stores and Gap.com both operate under the single brand of "The Gap". Customers who buy jeans online should be able to return or exchange them at any Gap store, and customers' records should be commonly held regardless of which channel was used. Gap gift certificates issued online should be able to be used at any physical Gap store or online.

Other examples of clicks and bricks integration abound. Several clicks-only startups moved toward the clicks and bricks model by opening their own bricks and mortar stores. Gozoontite.com, a seller of allergy and asthma treatments that began as a pure Internet retailer, opened five stores allowing customers to try out products prior to purchase. Virgin.com, a successful British Internet brand, sells mobile phones, CDs, flight and train tickets, among other products and services. Virgin.com opened shops in London offering customers an in-store shopping experience. iParty.com, an Internet party supplies seller, opened about 30 Northeastern locations bought from the bankrupt Big Party chain. At the same time, Kmart, The Gap, JCPenney, Sears, Staples, and Barnes & Noble are among a myriad of traditional bricks and mortar retailers now employing the clicks and bricks business strategy. They are making an attempt to take advantage of the Internet channel and ultimately to obtain a synergy from an integration of their existing physical assets with new digital assets. A strategic alliance between Safeway Inc., a established bricks and mortar grocery retailer, and GroceryWorks.com, an online grocery, is another example showing how bricks and mortar and Internet pure players can move towards the clicks and bricks environment. Safeway and GroceryWorks.com utilize each other's core competency and share each other's resources to provide an enhanced shopping experience to their customers.

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Strategies for the Hybrid Clicks and Bricks Model

As the number of retailers that are leveraging their bricks and mortar stores with the Internet business model grows, it is important to study and categorize the innovative strategies that can be used in employing physical storefronts in conjunction with virtual storefronts to maximize value to both the customers and the businesses.

1. Strategies for handling problems with goods

• Returns and exchanges of goods purchased online, at physical stores
  Allowing customers to return or exchange Web-purchased goods at physical stores instead of having to ship them back, removes one of the perceived barriers to shopping online. It also encourages them to visit the company's physical stores for additional purchases. Plus, in the case of exchanging goods customers can get new items immediately. Barnes & Noble, Staples, Best Buy, Babies "R" Us, The Gap, Eddie Bauer, and Bloomingdale are examples of retailers currently providing options for customers to return or exchange the goods purchased online (or by mail), in their stores.
• Repair services for goods purchased online at physical stores
  Providing repair services at physical stores for goods bought online also allows the customer to avoid packing and shipping plus drives customers to the stores. For example, Best Buy allows customers to drop off goods purchased online at local stores for repair. Customers can check whether their items have been repaired and learn about the latest diagnosis of the problem through Best Buy's Web site [9]. Also, vendors might utilize their Web sites to prepare some of the documentation required for returns, exchanges, or repairs in advance, giving the customer more time to shop.

Strategies for fulfilling customers' immediate needs
Customers should be able to utilize a company's Internet capability for learning about products, getting recommendations, and placing orders while utilizing their physical stores for quick access to merchandise.

• Pick up online orders at stores
  After placing orders online, customers should be able to choose between having the ordered products shipped to them or picking the products up at the retailer's local stores for immediate acquisition. In another scenario, it allows customers to minimize their time spent in the store by placing orders online and then simply picking them up in the store. CVS, Walgreen, Best Buy, and Circuit City offer customers the choice of having merchandise ordered online, delivered to them by mail or picked-up in person. Corky's, a Memphis-based restaurant, allows customers to view its menu and place food orders over the Internet and then have them picked up at their restaurants or shipped by FedEx. Blockbuster customers in Austin and Denver can reserve movies online and schedule an in-store pick-up. W.H.Smith Co., a British bookseller, has locations in major airports and train stations, worldwide. W.H. Smith's customers can order books online and request to have them delivered to any W.H. Smith location for pick-up. Customers have found that it is very convenient for them to pick up books, ordered in advance online, at airports or train stations they pass through while traveling [9].
• Using purchases at stores
  An obvious time-saver would be the ability to place a restaurant order (including getting recommendations) online and then have it ready and waiting upon arrival at the restaurant. Waiter.com, for example, provides such an online service. With Waiter.com, customers are able to view menus and order online from over 1,300 restaurants nationwide. They are offered an option of "sit down" to have the food served at the restaurants, in addition to takeout and delivery services.
• Delivering from local stores
  There are some situations in which it would be advantageous to have goods ordered online, shipped from a local store that has them in stock. Depending on the shipper's methods and schedules, shipping merchandise from local stores might provide customers with faster acquisition than shipping from a distant distribution center. Blockbuster announced a home-delivery agreement with Food.com, an Internet food-and-restaurant destination site, that will allow Blockbuster videos to be delivered by Food.com through Takeout Taxi, a restaurant delivery service [11].
  The best option of all would be to give customers the choice of any of these methods of merchandise access.

Locating items for fast acquisition
To locate merchandise in physical stores and prevent wasted trips, customers should be able to get real time access to a company's online store inventory system (assuming such a system exists.) Furthermore, the items can be ordered online and held in the stores for customer pickup. For instance, Autobytel.com, an online car buying Web site, employs an online locate-to-order system that displays the availability of dealers' General Motors car inventory [8]. Circuit City allows customers to check product availability in customers' preferred store locations and then arrange for express pick-up the same day. We can envision the day when major department stores and other retailers will provide the same level of service.

Utilizing physical storefronts to "touch and feel" the goods
Product information embedded in Web sites might not always be convincing enough for customers to make purchasing decisions. For certain products or for certain customers, feeling, touching, or testing a product is a required element of the purchasing process. In addition, receiving face-to-face advice at stores is more understandable and comfortable for certain groups of customers. For example, Gateway Computers has opened Gateway Country stores as demonstration sites that also provide sales advice and training but that have no inventory holdings. Gateway stores are simply a complementary channel to reach customers that encourage customers to buy a Gateway computer. Gazoontite.com's customers can now go to Gazoontite's stores located in San Francisco, Los Angeles, and New York to try out air purifiers, inhalers, and aroma therapy.

In-store Web kiosks
According to a survey by Forrester Research, 80% of all major retailers are planning to have kiosks installed in their stores [3]. The in-store kiosks are regarded as tools for further integrating the physical and digital business entities to provide enhanced customer service. In-store kiosks, with access to a company's Web site, can be used in a number of innovative ways:

• Extending product selections
  Kiosks can provide customers with access to many more products than can be displayed in a store. Staples' stores, for example, carry only 7,500 products while its store's Web kiosks give customers access to up to 45,000 products [6]. Radio Shack has successfully used kiosks to extend product assortments to include low-demand products [1]. Kmart physical stores carry about 75,000 items, while Kmart's Bluelight.com site carries about 240,000 items [10]. Customers can use kiosks in eight Gap stores to browse and shop for products in Gap, Gapkids, and Babygap online stores.
• Kiosks as an educational tool assisting customers and store staff
  Kiosks, such as Best Buy's, can be used to educate both customers and inexperienced sales staff about product features and use, providing much more information than the product packages can possibly contain. This is especially helpful for complicated and highly technical products. Using kiosks, Sears' customers can be educated about products and view side-by-side comparisons with competitive products regarding product attributes and price. This also provides Sears with an opportunity for price matching. Kiosks can also be used as a demonstration tool. There is a concern that kiosks might alienate sales staff by eating into their commissions. Lids Corporation, a hats and caps retailer, has overcome this problem by allowing employees to get credit for purchases made with their assistance by entering their ID codes along with the other purchase information [4].
• Providing store maps for customers to quickly locate items in stores
  By entering product names or categories, store maps accessible on kiosks can help customers quickly and efficiently locate desired items in stores, thereby increasing sales. For example, customers of book retailer Borders can use in-store kiosks to search for and locate items available in a store with the presentation of a store map. A future feature of such a system might plot an efficient path through the store to find several specified items.
• Placing orders of out-of-stock, hard-to-find, or hard-to-carry items
  When customers learn their desired products are not carried by the store or are out of stock in the store, the customers should be able to place an order for them on the spot via in-store kiosks. Moreover, for large, heavy, or fragile items, customers can view, touch, or test them and then immediately buy them through the kiosk and have them delivered directly to their home. For companies with online store inventory, customers could use the in-store kiosk to locate the item in any other nearby company stores. Customers can make express orders of out-of-stock books with Barnes & Noble's kiosks and schedule pick-ups for them later at the stores or have them delivered [7]. Kmart's in-store kiosks allow customers to place orders for out-of-stock or hard-to-find items, as well as large items requiring home delivery. Best Buy's customers can research products and order out-of-stock products in stores with the kiosks. Best Buy claims that more than one third of their recent computer sales were generated from in-store kiosks [6].
• Promoting one-to-one marketing initiatives
  A kiosk could be made to function as an effective one-to-one marketing tool. Kroger stores currently issue their supermarket customers personal barcodes for their keychains, which are used to get discounts when they check out. But in a more advanced scenario, customers could identify themselves to kiosks located at the front of the store and receive targeted promotional coupons based on their recorded demographic data, interests, and sales history.
• Providing customers with sales history and purchasing recommendations
  Customers could use in-store kiosks to review their previous purchases, and be refreshed on exactly what products and brands they purchased in the past, thus giving them ideas for additional purchases on this visit. Additionally, the company's computer can make suggestions for purchases, on a personalized basis, based on the customer's stored demographic, preference, and sales history data.
  With these kiosks tied into a customer relationship management (CRM) system, in-store personnel can make recommendations to customers for additional sales based on the customers' preferences and sales history.
• Printing order vouchers and pay at a store
  Staples offers customers the option to pay for their online purchases with cash, check, or credit card at their physical stores. With Staples' kiosks, customers simply create scannable printouts of their online orders and take the printouts to pay for the items at an in-store register. This payment option allows Staples to overcome the barrier of Internet security that is a concern for some customers [5].
• Providing Web links to nearby stores
  Kiosk displays could include links to other nearby stores that offer complementary products or service. For instance, while customers are shopping at a grocery store, they might be able to order a meal at a nearby restaurant and check the availability of a newly released movie at a local video store. This strategy would give a mutual benefit for both referred stores and referrer stores. Referral commission and driving sales traffic to each other's store would be a valuable benefit, in addition to enhanced customer service.
• Creating a shopping list
  The online and offline stores can be exclusively integrated to provide an enhanced shopping experience to customers through the use of kiosks to print out shopping lists created from previous in-store shopping trips or online shopping at home. Some Wal-Mart stores allow their customers to use in-store kiosks to create a shopping list or a gift registry with a handheld scanning device. Customers scan the items they wish to place on their registry with the device as they walk through the store. The scanned items are then uploaded to the Web-based personal registry for future purchases either at physical Wal-Mart stores or over the Web. Customers, their families, and their friends can access the registry via the kiosks for in-store shopping or via their personal computers for online shopping to purchase the items on the list.
  Integrating several of these concepts, imagine a future supermarket in which customers identify themselves with a personal bar code on their keychain at a kiosk located at the store entrance. The kiosk is connected to a CRM system which instantly analyzes the customer's buying patterns, demographics, and preferences. It then issues personalized, targeted coupons, a suggested shopping list, and a store map with a path indicating where the items are located.

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Challenges

The merging of online and offline business elements presents a significant challenge. A channel conflict potentially arises when businesses attempt to offer multiple channels, including Internet and store channels, and integrate them to provide the seamless movement of information among the channels. Differences in product offerings, prices, special promotions, and customer service policies, including return and exchange policies, among channels make the integration of the online and offline activities more difficult. As an example, in 1996 Charles Schwab's initial online trading charged customers lower prices than their more traditional trading channels, causing customer skepticism surrounding the channel conflicts [12]. The difference in Schwab's trading prices highlighted the separation of its online and offline businesses. Another challenge is that the clicks and bricks business model is more likely to cause difficulty in the control of inventory systems. Returns and exchanges of items across channels necessarily increase the complexity of inventory management. Furthermore, for franchised retail businesses in which each store has its own management policies, the full integration of online and offline activities would be more complicated. It might not be practical for franchised stores to accept returned items purchased online and from other stores.

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The Digital Library is published by the Association for Computing Machinery. Copyright © 2003 ACM, Inc.

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