Online Customers vs. Offline Customers: What New Age Consumer Brands Can Learn

In recent visits to some of Mumbai’s shopping malls, one observation stood out: almost every Nykaa offline store was a Nykaa Luxe outlet, carrying premium and luxury brands such as Estée Lauder, Dior, Huda Beauty, and MAC, etc. all at noticeably higher prices than Nykaa’s online store.

A similar pattern exists in consumer electronics. Take LG and Samsung TVs for example - buy online and you typically get a 1 year warranty. Buy offline and a comparable model often comes with a 3 year warranty at a slightly higher but not unreasonable price.

To understand this more deeply, let us go one by one. Let's start with consumer electronics and brands like LG and Samsung for instance.

When online shopping grew in India thanks to Amazon and Flipkart, information asymmetry disappeared. In other words, sellers with huge purchasing power, low capital investment, and deep discounting models brought down the prices of many consumer products. Customers discovered that online prices were much lower than the same products available offline. Even if it had been possible for retail stores to match these prices earlier, it would not have been sustainable in the long run, given their real estate and employee costs. Once consumers saw how low the prices could go, they stopped caring about the retailer and simply chose the lowest price along with the added convenience of shopping from home.

Over the years, retailers and their associations raised concerns. Brands already present in India before Amazon and Flipkart, where modern trade and general trade contributed substantially to sales, created a bifurcation in the SKUs being offered online and offline. Now, the challenge was: how do you differentiate between online consumers and offline consumers? Initially, the most visible difference between the two was due to “lower price” first, and “convenience” later.

To simplify and avoid conflicts, brands started to bring difference SKUs for online and offline channels. During festive sales, all online models would come with the lowest prices and with a 1 year warranty. Similar models, with different SKU names, would be available in offline stores with 3 year warranty, of course, at a slightly higher cost. The conclusion was that customers buying online want the lowest price at any cost and the simple answer is to give it to them.

But let’s not fool ourselves. There are no free lunches. Multiple small adjustments are made to hit online price points. For example:

• Some air conditioner models bought online may not include the 10 foot copper piping that offline models provide for free.
• Some TV models bought online may have fewer HDMI/USB ports or different display panels, whereas offline models generally feature all flagship specs in terms of panels and ports.
• Warranties on online models are often 1 year compared to 3 years for offline models.

Offline retail stores now assume that the customer has researched regarding the products online and the choice now is"where to buy"as compared to"what to buy". Therefore, communicating to the customer regarding the premium models available only at retail stores has now become essential and necessary. For new D2C brands aiming to have offline presence, the presence needs to come with a strong"WHY"without which investing in offline capital investments would not make financial sense, though they may make branding sense.

Now, in case of Nykaa, The Luxe stores carry only a curated selection, focusing exclusively on premium and luxury brands like Estée Lauder, Dior, Huda Beauty, MAC, etc. There will be beauty experts, testers and makeover artists dedicated to serve you when you enter. They even extend the offers of only testing at store and then purchasing online.

I had recently visited The Sleep Company's experience centre and they offered the same products at same prices - simple and no nonsense approach.

In conclusion, new age brands starting with online first approach should include the buffer of rental and retail costs from day 1 so that the customer does not feel cheated by seeing a higher price at retail stores for the same product available online. If this happens, it will most likely fail the offline expansion strategy for the startup.