O2O strategies must emphasize service quality

Businesses will suffer if real-world experiences leave shoppers cold

China's e-commerce companies are busy collaborating with bricks-and-mortar retailers as they work to build market share and integrate their brands into the fabric of daily life. For their part, many of the country's physical stores are eager to participate if it means tapping into the country's flourishing online shopping market. But unproven online-to-offline (O2O) models that attempt to connect e-commerce and real-work experience could create trouble for those venturing into unfamiliar territory.

The latest push to cultivate China's O2O space came last week when Shanghai-based e-commerce operator Yihaodian announced a cooperation with convenience store chain FamilyMart. Under the terms of their partnership, consumers can order goods on Yihaodian's website and then collect their packages in person at 300 FamilyMart branches in Shanghai.

Although China boasts a logistics infrastructure that can deliver online purchases to most urban homes and offices fairly quickly, this new service is apparently aimed at consumers who, for example, don't want to disclose personal address details or who might not be present when their packages arrive.

Of course, Yihaodian isn't exactly a trailblazer. Many of China's e-commerce companies have opened real-world pickup stations, which are now seen by many as hallmarks of the country's evolving O2O operations. In fact, Amazon China launched a pickup deal with FamilyMart last year. Later, in March, e-commerce operator jd.com announced that its retail partners could ship to a network of over 11,000 convenience stores. Alibaba's Tmall unit has also set up similar arrangements with several local convenience and grocery store chains.

With time, online shopping platforms are expected to expand their O2O service portfolios as they explore new ways to connect with customers. But striking a balance that combines the advantages of online and offline shopping won't be an easy task. As it stands now, the largest risks will likely fall on online companies. The experience of their customers in the offline world isn't something they can easily control. Away from the computer though, face-to-face service quality is arguably the most important factor in the shopping experience.

Maintaining a high level of service quality will be vital to all companies looking to expand their revenue through O2O. This is all the more important since many research fellows see O2O as the retail sector's next major frontier. According to iResearch, a Chinese Internet industry consultancy, the O2O market for restaurant reservations, ticket pickups and other related services is expected to grow by 20 to 50 percent from 2014 to the end of 2017; while O2O transactions involving traditional retailers and mobile payments are expected to grow by 600 percent. All told, the consultancy foresees O2O revenue exceeding 170 billion yuan ($27.3 billion) by the end of the same period.

In comparison, data released in May by China's Ministry of Commerce showed online retail sales in the country hitting 1.85 trillion yuan in 2013, up 41.2 percent from the previous year.

Unleashing the market's full potential will hinge on delivering services that leave consumers feeling satisfied. Positive offline experiences will benefit the real-world partner and the reputation of the online operator as well. On the flip side though, poor service, impolite treatment or package delays will cast a shadow over the O2O experience.

E-commerce companies should create unified standards that can be applied to all of their partners. Online shopping companies that cooperate with multiple in-store pickup partners should create systems to guarantee consistency and convenience for their customers.

Cooperating with convenience stores is likely just one step toward the development of the O2O market. As anyone who has been to a large Chinese city can attest, one is rarely far from such a store and few urbanites get through the day without popping in for something.

But there are other venues through which online shopping sites can connect with the real world. For example, Didi Dache and Kuaidi Dache, mobile taxi hailing apps backed by Internet conglomerate Tencent and Alibaba respectively, could be seen as O2O ventures in their own right. If they perform well into the future, we can perhaps expect other online businesses to explore the market for transportation services.

As China's e-commerce companies cultivate their O2O strategies, they should work as closely as possible with their offline partners to make sure that both sides benefit. This will necessitate the combination of their strengths in a way that produces a pleasant and convenient experience for consumers.