Bricks and Clicks.The right balance between virtual and physical stores

Table of Contents

1. Introduction

2. Finding the Right Level of Integration and Separation

3. How to choose the Right Integration Strategy
3.1 Brand
3.2 Management
3.3 Operations
3.4 Equity

4. Application - The Bricks and Clicks Strategy of Zara and Dell
4.1 Zara
4.2 Dell

5. Conclusion

Table of References

1. Introduction

E-Commerce is the process of “buying and selling of products and services by businesses and consumers over the Internet” (Dynamic Webs, 2008) More and more people are using the Internet to search for detailed product information and the best deals by comparing prices.

As the importance of E-Commerce is constantly growing, traditional brick-and mortar companies have to consider building up an additional sales channel - the Internet.

In order to be successful, companies have to find an appropriate proportion between full integration and separation of virtual and physical store.

The purpose of this paper is to give an overview of the article “Get the Right Mix of Bricks & Clicks” by Ranjay Gulati and Jason Garino, which was published in the Harvard Business Review of June 2000.

To understand the concept better, the author is applying the arguments to two E-business firms: “Zara”, a clothing retailer and “Dell”, a computer manufacturer.

2. Finding the Right Level of Integration and Separation

Thinking about setting up an online store, is not just about opening a new sales channel. Companies face difficult decisions, as they have to decide whether they fully want to integrate their virtual and their physical sales channels or if they want to observe them separately.

By integration it is meant that the physical business and the online channels are tightly connected and related with each other.

Through the right level of integration, the brick and the click companies can easily share information and knowledge, perform cross-promotion and manage their assets together. Furthermore companies are able to purchase leverage and distribute the goods traded between each other. Since the virtual branch can benefit from the experience the physical store gained over the years, both businesses can capture an overall greater value and strengthen their strategic position. In contrast to integration stands separation, which refers to the establishment of a completely independent internet sales channel. In that case the company aims to be self-sufficient in decision making, can react highly flexible and is able to avoid cannibalization. On the other hand these benefits are outweighed by losses that can occur, when there is no brand recognition between the physical and virtual business units (Gulati & Garino, 2000, p.107ff).

Among the two extremes there are different modes, the company can choose from. Each company itself has to decide the degree of integration or separation, it will conduct.

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Figure 1: The Clicks-and-Mortar-Spectrum taken from Gulati & Garino “Get the Right Mix of Bricks and Clicks”, p. 110

Between the two poles “separation” and “integration”, four different stages can be distinguished and chosen by each company. “Spin-off” means that the company is conducting the virtual business totally separated from the brick store. “Strategic Partnership” and “Joint Venture” are modes in between the two extremes. “In-House-Division” refers to the full integration, the company has reached.

The authors themselves suggest firms to think about a proper way of executing e-business - to find “the right mix of bricks & clicks”, as the cases title already assumes.

In order to help companies to find the most suitable integration strategy, the authors offer useful instruction steps.

Those steps and the authors’ arguments will be explained in the following chapter.

3. How to choose the Right Integration Strategy

Basically there are four different dimensions among which a company can decide on its level of integration and separation.

The decision depends on the different companies’ background, business environment, business strategy and the different needs and expectations the company has, considering the online business operations. There is no unique way for a company to apply a successful strategy - it rather has to match the right level of both strategies to its business (Gulati & Garino, 2000, p.113). The four dimensions - brand, management, operations and equity - have to be regarded solely when thinking about an integration strategy.

3.1 Brand

Brands are important buying indicators for most consumers. If the physical firm established a well- known, strong and popular brand, the virtual division can benefit from the consumer’s trust and loyalty. Immediate customer flow and revenue can doubtlessly be taken into account. Both, customers and company, can benefit from a full integration in a way that both save money. Customers often do not have to pay delivery costs and usually get discounts when purchasing online, whereas the company does not have to print and mail expensive catalogs. Furthermore web transactions are a lot cheaper to handle than catalog orders are (Gulati & Garino, 2000, p.109). Once the virtual store is established, customers have the opportunity to bring unwanted delivered products back to the physical stores. In such cases, the company benefits from more customers entering their stores.

Nevertheless it is not easy to reach every customer segment through simply putting the companies’ emblem on a webpage. Furthermore a company “often loses flexibility” (Gulati & Garino, 2000, p.113) since it might have to offer the same products online to not confuse the consumers.

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