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What drives online retail sales?

A quarter of all retail sales by 2020 will happen through online channels, says a report by Google and A.T. Kearney. The report, which tells us many statistics that point to an increase in number of online shoppers, also throws some light on why people are increasingly preferring to buy things with a click of a mouse. It also lists the barriers that are stopping people from embracing the culture. First, some numbers to understand the quantum sales and its impact:

  • About 125 million new shoppers will buy things online by 2020
  • No. of online shoppers will grow at 3 times the current rate; and most importantly, the top 1/3rd of the customers will drive 2/3rd the sales.
  • Women will double their share of online spend (from 20% in 2016 to 42% to 2020)
  • Faster delivery is the most sought after value added service; about 46% of the people who took the survey said they would pay extra for quicker delivery
  • Cash-on-delivery is the preferred mode of payment and will stay that way (57% in 2016 to 45% in 2020)

As you can see the digital channels are here to stay and for good. To understand why online shopping is growing by the day, we need to ask ourselves two questions: what makes buying things off online stores an activity that goes beyond a normal shopping experience? What are the forces at play that help blur the line between our wants and needs?

Shopping online and instant gratification

Gratification is a positive emotional response (happiness) to a fulfilment of a desire. Instant gratification is one of the key factors that drives online sales. Faster delivery options (sold in guise of ‘convenience’) is, in essence, a positive reinforcement and we pay extra to receive it.
Delayed gratification is one of the main reasons cited as barriers for non-buyers. But a closer look at the second and third reasons reveal that they, too, are manifestations of the need for instant gratification. The need to touch and feel and longer delivery times arise from the same drive.

The report says that these factors are the major barriers that the companies have to overcome and addressing them would increase its customer base by of 3.5 times by 2020. And in order to serve the increasing demand and need for faster delivery times, online sellers need to grow by 5x in the same period.

Key reason for buying online: Easy access

We are talking about access at two levels: the range of products/services on offer and the means provided (COD, EMIs) to buy them. The ease of access acts as another incentive for us to go ahead with a purchase, which when otherwise we might not go ahead with. Product assortment is the most important ‘non-discount purchase-driver’. 

Among the different categories, lifestyle and consumer electronics will the most sought after categories. Sale of products under lifestyle category is expected to overtake that of consumer electronics by 2020.  And underpenetrated categories like home, personal care are expected to likely gain more traction in the coming years.

Also, the report clears a misconception about discounts being the among the top reasons for buyers to make a purchase. It says: “For current online buyers, product assortment and convenience of ordering and delivery are the top-2 non-discount purchase reasons. New buyers will also value the same factors, though convenience will the top purchase-driver, over assortment”

It is evident that there are range of factors that influence our buying decisions, with gratification among the most important ones. Do tell us what’s your opinion on online retail and on why many us make impulsive purchases.

The full report can be accessed here.

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