Bricks and Clicks
Clicks and Mortar

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Early E-Commerce: internet firms have a cost advantage

In the early years of Web-based commerce, the emphasis was placed on sources of competitive advantage that Internet firms had over traditional ones, primarily using transaction cost logic. Transaction cost economics emphasizes the nature of costs that firms incur in the process of conducting transactions with buyers or sellers.

Transaction cost economics

• Information gathering and search costs,
• Negotiation and settlement costs, and
• Monitoring costs to ensure that trading partners adhere to the terms of any agreements made.

later e-commerce: More advantages of e-commerce over traditional commerce

In addition to the transaction cost advantages offered by e-commerce, researchers have found numerous other advantages that virtual firms have over physical firms. Web-based businesses are perceived to hold many operational, cost, scale, and scope advantages over firms confined to physical channels. These advantages include:

• access to wider markets,
• lower inventory and building costs,
• flexibility in sourcing inputs,
• improved transaction automation and data mining capabilities,
• ability to bypass intermediaries,
• lower menu costs enabling more rapid response to market changes,
• ease of bundling complementary products,
• ease of offering 7X24 access, and
• no limitation on depth of information provided to potential customers.

The Bricks and Clicks business model

The Bricks and Clicks (also: Clicks and Mortar) business model refers to the marriage of traditional ways to conduct a business (often using direct, face-to-face contacts with customers) and Internet ways to interact with customers (often via websites, email, FTP and other internet technologies). Compare also: Multi Channel Marketing. The integration of e-commerce with existing physical channels is a challenging undertaking that can create problems for management. Marketing theorists have long recognized the potential for channel conflicts that can occur when there are alternative paths that products can take to the end consumer.

The Clicks and Mortar business model suggests that traditional sales channels can be operated along or even in an integrated way with internet sales channels.

advantages of Clicks and mortar strategy

Typical advantages of Bricks and Clicks strategies are the leveraging of synergies:

• Common Core Competences
• Common infrastructures
• Common operations
• Common customer base
• Common supplier networks
• Common distribution channels
• Common Brand equity (marketing)
• Common Trust (perceived stability)
• Lower weighted average cost of capital (WACC)
• Improving Organizational learning

The Clicks and Mortar model offers an advantage in areas of business where it is better to leverage competencies and assets from a physical company. Ideally the integration of physical and online channels enables firms to capitalize on potential synergies between the two, yielding competitive advantages over pure internet firms, or firms that offer e-commerce channels in a more parallel (non-integrated) fashion. Pure dot coms, on the other hand, have an advantage in areas that stress cost efficiency. They are not burdened with Brick and Mortar costs and can offer products at very low marginal cost. However, they sometimes spend substantially more on customer acquisition.

Avoiding Channel Conflicts

Firms with multiple channels may fall prey to channel conflicts. Channel conflicts can occur when the alternative means of reaching customers competes with or bypasses existing physical channels. One danger is that these conflicts result in one channel simply cannibalizing sales from the other. Perceived threats caused by competition and conflict across channels can have other harmful effects, including limited cooperation across the channels, confusion when customers attempt to engage in transactions using the two uncoordinated channels, and even sabotage of one channel by the other. Management must act to diffuse conflicts, and ensure the necessary alignment of goals, coordination and control, and development of capabilities to achieve synergy benefits.

Aligning goals across physical and virtual channels implies that all employees involved realize that the parent firm benefits from sales originating in either channel. One problem faced by Click and Mortar firms is that the contributions made by the Internet channel may be intangible and hard to measure.

Coordination and control mechanisms include interoperability across channels so that customers may move freely between channels, the use of each channel to promote the other, incentives encouraging cross-channel cooperation, and coordinating customer services to ensure that the unique strengths of each channel are utilized.
 

Book: Robert Spector - Anytime, Anywhere

Book: Martin Lindstrom - Clicks, Bricks and Brands

Book: Martin Brighty, Dean Markham - Winning E-Brand Strategies

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