It took almost ten years from the launch of Amazon for the myth of brick-and-mortar’s imminent death to evaporate. Venture capital and media darling Fab.com became extinct, similar to the fate of Pets.com years ago. Gilt.com delayed an IPO until purchased by Saks’ parent company Hudson’s Bay, which revealed plans to create Gilt concepts stores within Saks OFF 5th. Warby Parker, Bonobos – retailers born online that continue to thrive – incorporated retail presence into their strategy; each now have more than 20 showrooms each. Not only do physical stores remove frictions (what makes customers abandon a purchase) such as delayed delivery and cumbersome return processes, they are important marketing tools. Traffic to e-tailer websites increases as they open up stores, as shown in graphs from L2’s Death of Pureplay study.
Professor of Marketing at Wharton and speaker at L2’s Clicks and Mortar clinic David Bell explains why in his book Why Location Is (Still) Everything. “The internet has flattened supply, but not demand,” Bell says in an interview with L2. Even though someone in Minneapolis, Minnesota can buy the same goods as someone in New York City, their preference will diverge. Consumer preferences are still shaped largely by the offline world: word of mouth, what they see offline (signage, eye-catching packaging), and the habits of those nearby. In his book, he introduces the framework of GRAVITY (Geography, Resistance, Adjacency, Vicinity, Isolation, Topography, and You) to illustrate how our offline lives influence our online purchases.
Geography, or a person’s physical location determines their preferences. For example, Maxwell House has a larger market share in San Francisco because the coffee originated in San Francisco. Meanwhile Northeasterner prefer Folgers, which was made in Tennessee. And studies show that Folgers drinkers that move to San Francisco are very likely to change their preference to that dominant in their new location. Resistance is what keeps them from buying. The distance to nearby stores and search rank are examples of friction, as a long drive or being located below a certain search rank are potential barriers to consumers purchasing. (For example, when looking for a restaurant, mobile users rarely look beyond the top three results.) Adjacency is social contagion, or the influence of word-of-mouth and preferences of those around us like coworkers and neighbors. Vicinity addresses how our tastes are shaped by those we have community ties to, and can be virtual or physical. For example, Facebook ads were twice as successful targeted based on preferences of a friend. Isolation – or having preferences that are different than anyone around – also shapes behavior. For example, an Australian who likes vegemite and lives in Philadelphia will likely be driven to buy it online as local stores are unlikely to supply it. Topography, the evolving landscape of the real and virtual worlds (and how they connect) not only affects what people want, but when and how they are able to receive it.
So why the term GRAVITY? It describes the gravitational pull of goods, which is important for any business to understand. “Amazon succeeded because the offline option for buying books had no gravitational pull,” Bell said. However, for items like sweaters, the offline option is much more attractive (due to being able to verify size and feel).
A video of his talk will be available to members after February 4th.