O2O Blog Images 02
Tom Doctoroff Research

Online to Offline (O2O): What the West Can Learn from China

The explosion of “online to offline” (“O2O”) strategies is a phenomenon in China. However, the fusion of reassurance and inspiration offered by best-in-class O2O should be embraced in the West, particularly given the steep decline of brick-and-mortar sales in America and Europe.

First, definitions. What is O2O? It’s a practice that draws potential customers from online channels to physical stores, or vice versa. For example, “click and collect” involves goods that are ordered from a store’s website and collected at a local branch to avoid delivery fees and congested retail spaces.

In America and Europe, O2O delivers largely functional benefits such as convenience. In China, however, O2O is one of the most dynamic – and, for consumers, satisfying — areas of commercial innovation. Offline and online blend into holistic, rewarding experiences.

Outstanding examples abound.

Suning, the appliance retailer, has partnered with Alibaba, combining the latter’s online retailing assets with the former’s physical stores and distribution facilities to turn purchasing of consumer electronics into themed experiential “zones” – for example, “gaming command centers” and “kitchens for fine cuisine.” And “cloud stores” merge e-retailing with brick-and-mortar shops. Large screens display and sell products unavailable on-site.

Ping’an Insurance Group’s “Good Doctor” app liberates citizens from China’s sclerotic medical system. Seventy million have downloaded the service that provides diagnosis and treatment support, appointment booking, and consultations with doctors through text, pictures and video.

China’s embrace of online-to-offline is partly driven by the country’s unique commercial landscape. Characteristics include: a non-responsive and oligopolistic service sector that fuels demand for innovative O2O solutions; low credit card penetration that catalyzes development of online payment systems; cheap labor costs for inexpensive delivery; ubiquity of quick response (QR) codes – thanks, WeChat! – that propel “retail-tainment”; and the Communist Party’s active push of growth through digital transformation of an “Internet Plus” economy.

Chinese psychology is also a critical factor in the spread of O2O.

Most fundamentally, O2O provides reassurance to China’s safety-seeking population. Non-individualism militates against institutional protection of economic interests. There are no impartial commercial courts or consumer protection bureaus. So the ability to “kick the tires” before virtual transactions are finalized is comforting.

In China, a country that reveres the concrete, anything nebulous is suspect. Operational scale, on the other hand, buoys spirits. Aversion to virtual transactions was mitigated only after Alipay, the payment system operated by Alibaba, became universally accepted.

The flip side of self-protection is the need to feel in control. That’s why dao jia (door-to-door) – even more consumer-centric than O2O because service is “whenever, wherever” — is so popular. The tracking capabilities of Ele.me, a food delivery service, makes the America’s order-and-pray Seamless app feel prehistoric. Pizza delivery crews riding GPS-enabled bicycles minimize China’s national trust deficit.

Finally, the Chinese are shrewd bargain hunters who demand value, not just low price. Wei Long, an online spicy snack retailer, recently opened high-tech, screen-enabled restaurants inspired by Apple stores. Vivo, China’s third largest online mobile phone brand, now operates hundreds offline stores with “selfie centers.” Celebrity photo ops can be broadcast to the world on social media platforms.

Yes, O2O is “strategy with Chinese characteristics.” But, as Western brand builders elevate transactional efficiency into multi-dimensional experience, it’s finally time to look to China for new ideas.