▲ SK Syrup. Provided by SK Planet.

Syrup is one of the online-to-offline (O2O) services for consumers.It offers users information about restaurants and shops based on the big data collected through its OK Cash-bag and Smart-wallet services. After deciding where to go, consumers can order from the menus or purchase goods before entering without the need to queue up. Furthermore, they are provided with customized discount coupons issued according to the number of purchases.

 

Before the advent of the mobile Internet, sales in offline markets and online markets have been independent. Though the power of online retailors was strengthened, offline stores could retain some customer loyalty as the influence of online firms were limited outside home or office. However, the new services link online customers with offline providers of goods and services, extinguishing the block between online and offline markets.

 

 

“The emergence of O2O services is a natural phenomenon caused by the development of mobile Internet,” said Professor Lee Janghyuk (Business School). The consumer market which experienced an upheaval caused by the advent of online shopping is facing another significant change. In fact, there are many different O2O services operated around the world.

 

The American wireless operator AT&T launched its O2O shopping service similar to Syrup called Alerts in 2012. Apple is also one of major players in the O2O Market, offering iButterfly service in more than 80 nations.In the transportation industry, an alternative taxi app called Wuber and a mobile car rental service named Zipcar are threatening the existing offline firms.

 

Another example of O2O services in Korea is KakaoTaxi by Daum-Kakao which will be launched in the first half of this year. It is the first domestic O2O transportation service and the first one approved in Korea. KakaoTaxieffectively links taxi users with drivers through the IT conglomerate’s mobile messenger KakaoTalk which almost all Koreans use. If users of the service enter their location and request taxis, KakaoTaxi assigns the closest taxis available.

 

The emergence of O2O services has had a significant impact on both the daily lives of customers and thecompetition among different types of retailers. On the perspective of opportunity costs, customers could be beneficiaries of the change. The economic cost of a purchase includes not only the explicit cost or the price of it but also the implicit opportunity cost. In particular, time is an important factor when measuring opportunity costs. Professor Lee said, “Busy workers who could reduce search costs through online shopping can now utilize mobile apps and further increase the efficiency of their purchases.”

 

▲ Professor Lee Janghyuk. Photographed by Lee Ji Hoon.

 

By using O2O services, offlinesales firms and stores can expect the innovation of their consumer management system. Major companies offering O2O services store records about individual customers and classify the customers into different segments according to criteria such as frequency and size of purchases. Using big data, stores are able to analyze the consuming patterns of their customers and provide suitable services for each individual.

 

 

 

 

 

However, there is some skepticism about the benefits of offline stores. “Since the competition between them is extremely keen, the stores will have no choice but to pay fees and register with O2O services,”says Lee. As the influence of the mobile services expands, offline stores’ dependence on them will increase, and O2O firms will try to raise the service fees. In this vicious cycle, the profit of offline stores will eventually approach zero.

 

It is true that some offline retailors will effectively utilize the O2O system and manage to increase their profits. Nevertheless, those close to success are mostly larger stores and sales conglomerates. They either have much stronger customer loyalty or enough financial and technological resources to develop their own O2O programs.For instance, CJ, a conglomerate which operates various food and entertainment chains, has developed an integrated mobile service named CJ One. Therefore, the gap between small stores and large chains in offline markets will be only enlarged.

 

Online intermediaries and retailers will definitely be the largest beneficiaries of the change. However, how they adapt to the new marketing environment and adjust their services will affect market shares of the firms and even their survival in the future.  Some firms which have their competitive advantage at mobile and wireless services will overwhelm those that have focused on rather traditional online services.

 

Will O2O markets succeed to play a continuous role linking online and offline? Until now, the development of mobile technologies has driven the growth of O2O markets. Whether different online and offline firms like it or not, more sophisticated technologies will appear and further improve O2O systems. In the process, some deteriorated services which failed at technological advance and customization for various customers could fall behind. However, the power of the mobile services as a whole industry will continue to increase.

 

Therefore, it seems that there is a need for online and offline firms to come up with measures to deal with this change. For IT companies, it will be significant to fully utilize new opportunities and adjust their services to fit into the demands of offline stores and customers. On the other hand, small offline stores should prioritize acknowledging the change and become first followers of the new trend, not the victims.