The platform strategy analysis of constructing the information closed-loop local life O2O business opportunity

Source: Internet
Author: User
Keywords O2O Business Opportunities

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A consumer is looking for a mid-range restaurant to have a meal with a friend. He pulled out his mobile phone, using the "Baidu map" to search the surrounding restaurants, immediately found around 2 kilometers within the 30 restaurants. Which one is more suitable? The consumer compares restaurant types, per capita consumption, restaurant location, restaurant photos, recommended dishes, and past consumer reviews of the restaurant with a "public comment network" and then chooses a restaurant that has a "group buy" offer.

The consumer then purchased the purchase coupon online, completed the mobile payment with Alipay, and completed the reservation using the online meal ordering function of the "small order Secretary". During dinner, he showed the restaurant the booking and purchase information, and received the corresponding services and concessions. After the meal, he evaluated the consumption experience on the "public comment" platform for other consumers ' reference.

This kind of consumption is not unusual, many people have experienced. This type of consumption process is a typical O2O mode, that is, online to Offline, O2O mode, refers to the Internet Platform to guide consumers on-line on the platform to complete the consumption decision, even after booking and payment, and then to the offline (Offline) The process of consuming a physical store. From 2012 onwards, the concept of line to offline (O2O) has arisen. Local services, including catering, beauty, movies, hotels, etc., are considered to be another "trillion" level market after the electric dealer.

The development of smartphones and mobile internet has put wings on the O2O model. Coupled with the maturity of location service (LBS), Customer Relationship Management System (CRM), mobile payment and other technologies and services, the O2O model is entering a period of golden development.

Public comments, the United States Regiment, tick-tock taxi and other O2O company rapid rise, Alibaba, Tencent, Baidu and other internet giants have been in the O2O field accelerated layout. O2O platform, as a surging emerging business model, how should we understand it, harness it, and achieve success? For the local life O2O platform, there are three important questions to answer:

1. Layout: How to build a complete and systematic local life O2O platform for Internet enterprises to form a positive cycle, rapid growth?

2. Competition: What kind of strategy should the Internet enterprises adopt to compete with rivals in order to win or even achieve the winner-take-all situation?

3. Refactoring: How can internet companies and traditional enterprises achieve success in the process of restructuring the local life service industry?

The layout of local life O2O platform: creating forward Cycle

"Five stage model" of O2O platform layout

Different from the traditional consumer's direct consumption mode, in the O2O platform business model, the whole consumption process is composed of two parts, line and line. Online platforms provide consumers with consumer guides, preferential information, convenience services (bookings, online payments, maps, etc.) and sharing platforms, while offline merchants focus on providing services. In O2O mode, the consumer's consumption process can be broken down into five phases:

The first stage: drainage

As the entrance of offline consumption decision, the online platform can bring together a large number of consumers with consumer demand, or trigger the consumer demand of offline consumption. The common O2O platform drainage entrance includes: Consumer Comment class website, such as the public comments; electronic maps, such as Baidu maps, gold maps, social networking sites or applications, such as micro-trust, Renren.

Phase II: Transformation

Online platform to the consumer to provide detailed information, concessions (such as group purchase, coupons), convenient services, user-friendly search, contrast shops, and ultimately help consumers to select the online merchants, the completion of consumer decision-making.

Phase III: Consumption

Consumers use the information obtained online to accept services and complete consumption by offline merchants.

Phase IV: Feedback

Consumers feed their consumer experiences to online platforms, helping other consumers make consumer decisions. Online platform through the carding and analysis of consumer feedback, the formation of a more complete local store information base, can attract more consumers to use the on-line platform.

Phase Fifth: Surviving

Online platform for consumers and local businesses to establish channels of communication, can help local businesses to maintain consumer relations, so that consumers repeat consumption, become business customers.


In the figure above, the closed loop formed by Red Arrows represents the decision and consumption process of the general consumer (the new customer); The closed loop formed by green arrows indicates the consumption process of the regulars.

From the five-stage model, it can be seen that only in all five of the chain layout and perfect, O2O platform can most effectively form a forward cycle, to achieve rapid rolling growth of the platform. With the five-stage model, we can understand the various business and local life O2O layout ideas of each Internet company, and find out their advantages and disadvantages and the direction of future layout.


such as the chart, in the local life O2O the layout of the field, the major Internet companies have taken different ideas, but are based on their own accumulation of the formation of core competencies. One Alibaba to deal with closed-loop as the core, Tencent to micro-letter as the core, Baidu search and map as the core. and the public comments and the United States to represent the group of medium-sized O2O Enterprises, through the line and offline development model, but also formed a considerable competitiveness.

The layout of the future local life service O2O will continue and the competition will be more intense. So what is the nature of the O2O platform business model? What are the effective strategies for O2O platform competition?

Local Life O2O Platform competition:

From the platform strategic point of view, O2O platform is a bilateral platform business model, its composition structure as shown in Figure 2. To understand the nature of O2O platform competition, to adopt effective competition strategy, we need to grasp the three consecutive items:

First, why is the O2O platform established?

Second, how does the O2O platform survive?

Third, how to win the O2O platform?


Foundation: Connecting the needs of each side

Local life O2O on one side of the platform for consumers, on the other side for offline local businesses. The platform has a strong cross border network effect, that is, more businesses will attract more consumers, and vice versa. The important function of the platform is to connect the needs of each side. Whether it can effectively balance the needs of consumers and offline businesses can help both sides realize value added is the key to the expansion of O2O platform.

Specifically, consumers want to be on the platform to obtain consumer advice, preferential information, consumer convenience, and evaluate or share consumption experience. And businesses want to use O2O platform to improve sales revenue, reduce operating costs, the formation of brand and word-of-mouth, understanding of market trends and consumer preferences.


What are the needs of consumers and businesses on the O2O platform of local life?

The premise of survival: Constructing information closed loop

Connect and meet the needs of each side, just the foundation of the O2O platform business model, can achieve sustainable development, but also depends on its ability to establish an effective profit model.

At present, the revenue of the O2O platform mainly comes from the marketing expenses (such as group purchase, coupons, advertisements, etc.) and the service cost (such as reservation service, online payment, etc.) that the merchant collects. Offline businesses often need O2O platform to quantify the impact of their sales, only to pay the corresponding costs. However, most trading processes and final services are done online, which means that most of the transaction information and consumption results are not fed back to the O2O platform. Then, this consumption process is unable to form an effective information closed loop.

If a consumer according to the public comments on the Web merchant information, the consumer decision-making, and to the store consumption. This is true, but the results of his decisions and consumption, the public comments are difficult to track, so it is difficult to share with the offline merchant revenue. Therefore, when the merchant and the consumer take place the transaction, the O2O platform can benefit from it, the key is to see whether it can construct the effective information closed loop.

Group Purchase Service Request online payment, natural to make the transaction information to form a closed loop, thus becoming the current stage of local life O2O platform, the main source of sales. Reservations, membership cards, online ordering and billing forms have gradually formed a certain degree of information closed-loop. In the future O2O platform competition, we also need to explore more effective closed-loop form and profit model.

In addition, it is worth pointing out that the business model of the O2O platform is based on the combination of line and line, which means that the O2O platform enterprise is hard to rely on the online platform like the Internet platform enterprise such as electricity business. At the same time, the demand of businesses under the local life line is diverse and complex, and if the O2O platform only provides standardized online services, it is difficult to meet the needs of most offline businesses.

In this way, on the one hand, the O2O platform needs to communicate and cooperate with the merchant online, to provide them with certain custom services; On the other hand, the understanding of the O2O mode, most of the offline businesses still stay in the relatively primary stage, the need for a further education process.

For the above two reasons, the O2O platform generally needs a large number of offline promotion, as well as a large business consulting team support, which makes the O2O platform model "heavy". The offline cost increases. This is also the O2O platform in the profit, need to solve the problem.

The key to winning: Winner-all conditions

O2O Field surging, platform dispute has been on the verge of a hair-trigger. Local Life O2O platform how to win, or even achieve winner-all?

What is the winner-all condition?

The platform can form a winner-take-all pattern, usually with the following three conditions:

1. Has a strong forward-side network effect;

2. In the platform important "side" to form the positive same edge network effect;

3. The platform important "side" has the high conversion cost;

The following for example, the electric dealer, buy, taxi software and shopping center, analysis of the formation of winner-take-all three conditions.


In the table above, all platforms have a certain cross side network effect. But only Consumer-to-consumer electric quotient has the strong forward same edge network effect and the high conversion cost at the same time, finally realized the winner taking all.

Compared to the Consumer-to-consumer platform, the same side network effect is stronger, this is because: when consumers buy less well-known small business goods, need to refer to a large number of previous consumer reviews. Only more deals and consumer reviews will attract more consumption.

At the same time, the conversion cost of Consumer-to-consumer electric platform is higher, this is because: personal sellers C is less well-known than a certain size or brand of large business B, when the conversion platform, the need to accumulate credit. In addition, personal sellers C also need to be familiar with the platform's operational management methods.

For these reasons, Taobao has achieved a winner-took-all (>90% share) in the Consumer-to-consumer field, while the cat has struggled to achieve winner-all (about 50%) in the field of business.

Obviously, to achieve the winner-take-all market pattern, not only depends on whether there is a cross-border network effect, but also depends on whether the platform has a high conversion cost, and whether the platform has a positive side network effect. In the table above, the O2O-related Chinese group buying platform, taxi software, lack of the same side effect, the conversion cost is also low. Even because of the rush-hour taxi, the competition for a limited number of taxis, resulting in a negative side network effect. None of them can form a winner-all situation.

So, how should the future Internet company's O2O platform stimulate the same-side network effect? How to improve the switching cost of the bilateral users?

How to stimulate the same edge network effect?

The excitation of the same edge network effect includes two kinds: one is the stimulation of the consumer's same-side network effect, the other is the stimulation of the network effect of the same side of the merchant.

The first is the excitation of the same-side network effect. It is the key that O2O platform can break the tipping point and realize the winner-all by stimulating the same-side network effect in consumers. Common forms of the same-side network effect on the platform include social and user-generated content (user generated contents, UGC). O2O transaction process itself does not have the same edge network effect, to stimulate interaction between consumers, and create the same edge network effect, need to rely on the O2O transaction activities.

The second is the stimulation of the network effect of the same side of the merchant. Generally, there is a negative side network effect between merchants, that is, when more merchants join the same O2O platform, it may produce excessive competition, which makes the profit of the merchant on the platform lower. In order to reduce the negative side of the network effect, the important means to be taken include: to maintain a fair competitive environment, the flow is not excessive concentration on a small number of influential merchants, the conscious assurance of new shops and some of the non-popular shops in the exposure rate.

How to increase the user's conversion cost?

Similarly, the increase in conversion costs is divided into two kinds: one is to increase the cost of conversion of consumers;

First look at the increase in consumer switching costs. Those who have contributed content on the platform, or consumption of users, if the replacement platform, is a certain conversion costs. However, if the quality of other platforms exceeds the platform, this partial conversion cost does not effectively prevent users from flowing out. The O2O platform needs to set up an effective incentive mechanism to improve the consumer's switching cost. For example, for highly rated members, more attractive rewards and privileged services are needed.

Next is the offline business conversion cost improvement. There are two types of tools that the general platform provides to the merchant: one is marketing tools, such as group purchase, coupon, and the other is operating software and tools. In comparison, the latter is more expensive to convert and more likely to make online businesses dependent. For example, if the merchant uses the Customer Relationship management system (CRM) provided by the platform, then when switching to another CRM system, it will be confronted with the existing data docking problem. Therefore, merchant CRM becomes one of the most important links in the whole O2O platform.

It is out of this key point of the card, Tencent acquired the CRM industry, one of the leading enterprises through the card. Alibaba ordering software Taobao Point of Design point of departure, but also through the Internet with the Merchant CRM system, occupy the merchant resources. The public comments on the business to provide food ordering tools and electronic membership cards and other services.

With the development of the Internet, especially the mobile internet, the local life service industry is undergoing a great change. With the development of this reform, the O2O platform evolves continuously, the business model and management behavior of the merchant will be reconstructed, and the consumer's consumption way and life style will also be reconstructed. This is an opportunity not to be missed and a challenge that must be faced, both for internet companies and for traditional businesses.

How do traditional enterprises seize the opportunity of O2O?

In the era of electric business, traditional manufacturing industry faced many challenges when facing the online transition, such as cross channel conflict. The difference is that, in the o2o of local life, the traditional local life service enterprises and businesses face more opportunities than challenges. Then, in the process of O2O platform formation, how to seize the opportunity to successfully fast card position, with the help of O2O platform to achieve high-speed development? The following issues need to be concerned:

Actively into the borrowing force. Traditional local service enterprises should face the change from offline to online with a positive attitude, pay close attention to the competition and development of O2O platform, and enlarge their popularity and influence with the help of influential O2O platform. and should pay special attention to the drainage function of O2O platform, in the target consumer's commonly used decision-making platform to carry on the marketing promotion, increases the exposure rate.

Take the bottom of the sea. Seabed fishing into Beijing and Shanghai at the beginning of the catering market, has been with the public to review the senior members of the interactive, in the public comments on the establishment of a very high visibility, the rapid promotion of the brand. As of June 2013, in the public comments on the internet, the sea bottom of the peony Garden shop in Beijing, Shanghai's Wu Zhong Road shop respectively accumulated 20004 and 12,272 reviews, the cumulative number of visitors are more than 1.1 million.

In addition, the seabed fishing also sent staff in the micro-blog timely response to consumer feedback, but also formed a submarine fishing fan QQ Group, and consumers frequent communication. These help to create a good brand image.

Pay attention to Word-of-mouth communication. The O2O platform makes the information and evaluation of local life-class merchants more transparent, and the comparison between merchants becomes easier. For businesses, because the positive word-of-mouth in the Internet quickly and wide spread, win more people identify and like, also because of the spread of negative word-of-mouth, in a certain period of time seriously affect the reputation and customer. Therefore, to improve service quality, enhance interaction with consumers, respond quickly to consumer complaints, feedback and maintain a good reputation among consumers, will become more important than ever.

Michael Anderson and Jeremy Magruder, a two professor of economics at UC Berkeley, conducted a study on the impact of the merchant-star rate on restaurant bookings on Yelp, a famous American comment. Studies show that if a restaurant's Yelp rating rises from 3 stars (5 stars) to 3.5 stars, the likelihood of a full restaurant full at a golden meal will rise from 13% to 34%; If it were to rise from 3.5 stars to 4 stars, the likelihood would rise by 19%.

Improve operational efficiency. Traditional enterprises can use interconnection technology and tools to optimize service flow, increase operational efficiency and reduce costs. Apart from fixed costs such as rent, the large variable costs of local businesses (such as human costs), other costs can be effectively reduced with the advent of new Internet tools.

For example, consumers in the traditional point of order and checkout link, need some waiter's processing and service, this will produce a certain operating costs. And even so, it often leads to high peak-time service waiting times, affecting consumer satisfaction. If you can spread the order to other time and place, and completed by the user, will improve the efficiency of the restaurant operation.

Play the value of data. In the O2O era, large data was an unusually valuable invisible asset. Traditional local service enterprises should work in depth with a platform with a large number of consumer data to strengthen their sensitivity to market changes, consumer preferences, the ancestors one step to respond.

Member management and precision marketing. With a certain scale of chain enterprises, in cooperation with large-scale O2O platform, you can also create their own online tools for member management and precision marketing.

McDonald's built a huge CRM system in Japan that has been successful. At present, the number of registered members in Japan's McDonald's has surpassed 30 million, covering most of the young people. McDonald's in Japan through the online, offline a large number of collection of user information, including the user's consumption frequency, frequented stores, the amount of single consumption, the purchase of food varieties.

McDonald's, which cost tens of billions of yen, has built a customer information mining system that is able to perform a very accurate mining analysis of user transaction data and then individually push different coupons to them. These personalized coupons effectively increase the frequency of the customers to the shop and enhance the store sales.

In short, the traditional service enterprises should take the initiative to adapt to the changes brought about by O2O, quickly find their own positioning on the O2O platform, using O2O platform to promote sales, reduce costs, expand the scale.


Shanda: MBA Level 2012 student, Ceibs

Wei: Professor Strategy, CEIBS International Business Administration College

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