Sunday, April 7, 2013

Is the Web out to destroy Retail?

Photo of the outside of a Best Buy store with the usual Yellow Best Buy Badge and blue swoosh
Best Buy
For many retailers, the internet has become the largest and most challenging obstacle. I know of many retailers who would prefer for none of the products they sell to be available for purchase online. Only then, they feel, their business would improve.  But if you ask consumers, you would hear the other side. Consumers know that the internet has come to reduce margins for the brick and mortar outfits; something  that they very much like as this means better discount for them.
In technical terms, the internet is an information equalizer. Prior to the internet, information flow was much slower, if there was any flow at all. In other words, there was an information asymmetry where the retailer held information or knowledge that the consumer did not. This is exactly the same as doctors knowing something about my health that I don't; which is why doctors charge me a premium for their services. It also explains why any fees I pay the physician typically grants me a cryptic and limited explanation. It is in the doctor's best interest to maintain the information asymmetry and to keep me in the dark about medicine and health if she wants to keep charging me lots of money for the visits. But all that is changing, even for doctors. Consumers are looking up information about their illness online and arming themselves with the tools needed to make their doctors accountable. That this could be taken to an extreme does not negate the fact that the equalization of information is good for consumers, will hurt most bad doctors and will place pricing pressures on the whole medical industry. Moreover, I am convinced that the equalizing property of the internet is here to stay and will even increase as the web's ecosystem improves.
So what should retailers do? There are two viable alternatives. One is to supercharge their knowledge. They must invest in knowledge acquisition beyond the level that would be reasonable for a consumer to gain through the web. The other option is to improve their efficiency and that of their supply chain beyond the level possible by a typical online supplier. Let's keep in mind that the whole appeal of the web as a distribution medium to someone who is looking at virtual versus physical store outlets is the efficient nature of the web. Now that a combination between exceptional knowledge at the store and a superior efficiency in the supply chain are perhaps the best combination. Do note that neither better knowledge nor better efficiency will take place if retailers keep their present momentum.

In a nut shell, I suggest that retailers see the internet not as some obscure underground movement against them but as a mechanism to democratize and thus balance information and knowledge. Only then, I feel, will they be able to find answers that will improve their business as well as create added value for their customers.

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