Why The Blurring Lines Between Online And Offline Make The Physical World More Important Than Ever

DavidRBell

David R. Bell is a professor of marketing at the University of Pennsylvania’s Wharton School of Business. He will present his research at the upcoming Industry Preview 2016 conference in January at a session on the confluence of digital marketing and the real world.

By day, David R. Bell is a professor of marketing at the Wharton School of Business, where he developed its first course on digital marketing and ecommerce.

But he's also as an active investor in a growing portfolio of digital-first companies, including Warby Parker and Bonobos.

He keeps his eye on emerging digital commerce companies, too, players like Harry’s (low-priced, high-quality shave products), Cotopaxi (socially conscious outdoor gear and apparel) and Dagne Dover (functional luxury handbags).

“The digital economy is changing the nature of how people consume,” he said.

It’s also changing what’s available for consumption and removing the imperative to own certain physical goods – automobiles in the case of Zipcar, nontraditional room rentals in the case of Airbnb.

“The digital economy brings tremendous efficiency to a traditional economy where there was so much inefficiency,” said Bell. “We have not seen the death of physical stores – rather, we’re going to see them change. Retailers will need to think carefully about what the real world provides and what the digital world provides, and how they can be coupled together with customer need.”

AdExchanger caught up with Bell.

AdExchanger: What do you look for when investing in a digital-first companies?

DAVID R. BELL: These are companies that combine the Internet and commerce. They can sell to anyone in the entire country – but the fact is that just because they have high sales and activity in one location doesn’t mean they will in another. What can these companies do to make people aware of them and expand their sales over time? It’s an interesting question from a research point of view.

What role does location play in an ecommerce company’s success in one location and not another?

Physical location in ecommerce, by definition, dictates what options someone has in terms of commercial activity and entertainment, and that is going to affect the way they use the Internet.

For one, the populations of different locations tend to share similar demographics. The people in Philadelphia, for example, are more similar to each other than they are to people in Springfield, Illinois. Once you know someone’s physical location, you can infer certain things about the characteristics of the people who live there – their income level, their education level and the population density, for example.

Secondly, you know a bit about their preferences. If someone lives in a certain location, say, the Lower East Side, they probably enjoy particular things, like going out to the movies or visiting bars.

Lastly, if you know someone’s physical location, you also know what their offline options are. If I’m in a big city like New York, I have access to everything I could possibly want to buy, but I might need an app to tell me what’s going on or where to go. But in a place like Iowa City, for example, there might only be two places to buy pants, so I’m fairly likely to go to jeans.com.

How do you define the digital economy?

Hard goods are turning into soft goods, and there is a growing realization that a lot of the stuff that people used to own actually has limited utility to it. Research shows that consuming experiences rather than owning things is what makes people happy. A big driver of that at the moment is the phone and the connectivity it allows.

What is the role of real-world marketing in an increasingly digital world?

Ninety percent of commerce still happens in a physical location, although it’s also important to consider the influence funnel. Look at luxury products. Only about 4% are sold online, but roughly 50% of luxury purchases are influenced by online content.

When you’re seeing virtual world companies like Amazon and Google opening stores, that shows how important the real world still is.

What do retailers need to be thinking about as they attempt to create that digital/real-world balance?

It’s about information and it’s about fulfillment and service. What does a customer need and what aspect of that need can optimally be offered online versus offline? From there, the marketing and the messaging will become far more clear.

Take 1800contacts.com. In that case, there’s no need to go to a store to get your contact lenses. But with glasses, people want to try them on, which is why Warby Parker will send people five pairs of glasses to try on in their homes for free.

Part of your research is also around the concept of impulse buying and the importance of physical location in that decision. What is the interplay there?

Impulsivity is all about removing the friction to purchase, whether that’s payment or access. The same concept behind Amazon 1-Click is behind the idea of candy displays at the front of a store by the checkout counter. People naturally have impulsive tendencies.

Is mobile making us even more impulsive?

The fact that I can be standing in a Starbucks on my phone looking at the latest and greatest products from Company X does make me more likely to buy something. At the very least, it’s an increased level of exposure.

Look at Uber. The fact that you don’t have to feel the pain of paying for a cab makes people more likely to use the service. There is no friction and you only notice the payment when you get your credit card statement.

As the barriers continue to be removed, I can envision a world where consumers will deliberately try to create control mechanisms for themselves – for example, a payment solution on a phone like Apple Pay that is automatically disabled when someone has reached a certain level of spending.

3 Comments

  1. Ashlee Andersen

    "Research shows that consuming experiences rather than owning things is what makes people happy." - I don't believe this for a second. What research shows this?

    Reply
  2. Patrick van Schie

    The statement that user-ship might have prevalence over ownership is very interesting. There are definitely many examples, whereby we do see that the experience is the leading consumer dimension (e.g. also music, books). However, I believe that this is particularly true for products that have a reference to the higher dimensions in the Maslow-Pyramid, like self-actualisation. For those consumer-needs that relate to the lower dimensions of the Maslow-pyramid the urge for ownership will be and remain much higher. The main reason is that this relates to higher levels of personal security and safety.

    Reply

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