The chaotic development of the Internet has left many attempts to route commerce through it stranded. Icons of the brick-and mortar age have often been the most hapless victims, floundering in vain attempts to attract the attention of browsers, and to deliver value. This makes the eminent online success of Office Depot especially worthy of study.
The business-to-business model has been especially difficult for middle-aged industrial and corporate buyers to comprehend. Those who have never learnt to write in code feel threatened by the very mention of a web site, and take refuge in the exaggerated risks of buying online (Tillinghast, 2002). The first key success factor of Office Depot lies in the simplicity of design of its web site, requiring no familiarity with computers or programming to place orders, pay for them, and to receive supplies.
Office Depot, by virtue of the variety of products and services on offer, tempts customers to become frequent web site visitors (Office Depot, 2006). Office supplies for coffee are positioned in the upper left quadrant where it is likely to catch first attention. The lay out is inviting, and is bound to generate curiosity and interest even in the minds of skeptical browsers. Overall, Office Depot scores through a web site, which is akin to the shop windows of the most popular retail outlet in the physical world.
Office Depot respects customer choice, emphasizing the availability of trusted brands (Office Depot, 2006). Generic products, new brands, and the most established ones such as Hewlett-Packard are offered with even prominence. This is in contrast to the online business forays of some others, which are blatant efforts to promote particular brands at the cost of customer degrees of freedom.
Broadly, Office Depot has succeeded in online business, because it has put customer needs ahead of technological innovation in electronic communication, ensuring that the Internet serves business needs rather than dictate terms to it.
Lessons from the Office Depot Online Success
Conventional marketing promoted the targeting of relatively narrow segments. This made sense as long as a business offered its products and services within the confines of a segregated area. An over-riding feature of the Internet is that the whole world becomes a single market place. Conventional marketing which is highly focused on a spatially limited segment pays the costs of existence on the World Wide Web, but without the attendant market potential and size benefits. We can learn from the success of Office Depot that online marketing has to address clusters (Payne, 2002) rather than narrow segments. Office Depot defines its customers as enterprises of all sizes, from the small to large corporations, and has combined its Internet foray with international operations. It is therefore able to use the full power of the medium.
The Internet makes the Process element of the Marketing Mix (Payne, 2002) a key determinant of success. Office Depot has a prominent promise on the web site of deliveries, without extra charge, within one business day. The enormous planning and investment efforts made to make this promise come true over incredibly large numbers of transactions everyday, has to be appreciated if anyone wishes to repeat the Office Depot success story. Perhaps the facility of the medium makes other enterprises offer commitments which they are not geared to meet, leaving customers disillusioned. There is a large and complex operation of logistics behind the Office Depot success, to keep adequate inventories of such a large number of items within a day’s reach of all customers.
The sophistication of online business tempts many enterprises to segregate Internet operations from conventional business. A lesson from Office Depot is that the medium should be integrated in to the mainstream in manners which lend synergy (Johnson, not dated). Office Depot treats customers on its web site just as it would if some one walked in to one of their conventional stores.
Finally, Office Depot enhances its physical and generic products with useful services (Johnson, not dated). The articles and discussions on small business and commercial resources must be particularly valuable for customers.
Competitive Advantage in Marketspace
Scale matters in marketspace (Johnson, not dated). Office Depot is successful because of the breadth of its product and service offers, because of the vast territory it serves, and the sheer weight of over a billion dollars of revenue, which is growing rapidly as well. These dimensions act as barriers to new entrants, and strengthen the company’s competitive strength from day to day.
Marketspace is first about customer needs, and not about the elegance and creativity of software engineers. Other enterprises have web sites with flash, multi-media, and other features which delight programmers, but which take time to load, and can even scare away customers. Web sites should have clear objectives (Tillinghast, 2002), and serve the business, rather than drive it. It is important for enterprises to avoid being overwhelmed by the aura of the Internet, and to keep it tightly within the reins of customer needs.
Limits to Online Business Success and the Office Deport Experience
There are 5 important limitations to online business in general, and to the foregoing account of the success of Office Depot in this regard: firstly, credit card and related payment frauds plague most electronic commerce ventures. The case does not mention the actual experience of Office Depot in this regard, and even if the company has not suffered any significant losses in this regard, it remains vulnerable for the future.
Secondly, products such as copiers and facsimile machines may require considerable product demonstration and after-sales-service, which the online business model is not geared to provide. The decision-making for pins and staples is certainly not the same as for equipment such as filing cabinets: Office Depot runs the risk of building revenues faster in low value-addition lines, as opposed to modern office products of the future.
Thirdly, Office Depot has tasted success during the halcyon years of a global economic boom. The serious fixed cost growth which it has encountered in terms of warehousing and logistics could become a serious drag on profitability during a future economic downturn.
Fourthly, the practice of offering products in kiosks which are not available or offered online, may rebound on the company. Customers may move away from the company’s web site once they realize that more choice is available in real stores.
Finally, the Office Depot experience lacks universal relevance. Many competitors, and companies in other lines of business may realize better returns from conventional business channels, and failures if they copy the high fixed cost and infrastructure-intensive online business model of Office Depot.
Johnson, W. C. (not dated) Case 13: Office Depot Goes Online-E-Service Quality, publication details not available
Payne, A. (2002) Services Marketing, Prentice-Hall
Tillinghast, T. (2002) Tactical Guide to Internet Marketing, Xlibris Corporation
Office Depot, (2006) Company website, retrieved January 16th 2007 from: http://www.officedepot.com/