Afterpay U.S.: The Omnichannel Dilemma – Case Solution

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Afterpay U.S.: The Omnichannel Dilemma Case Answers

Case Summary – Afterpay U.S.: The Omnichannel Dilemma

Established in 2014 in Australia, Afterpay U.S. targeted millennials with an online payment service that allowed them to pay for e-commerce purchases in interest-free installments. This was offered through integration with the merchant’s website.

The company faced increasing pressure from its customers and merchants to introduce an offline offering.

Now, Nick Molnar (CEO and Founder of Afterpay) is evaluating the strategies for in-store expansion in the US.

The company wants to evaluate whether to start offering in-store services now or wait for the brand to become more renowned and acquire a large online customer base in the US. A large online base would also help in spreading offline overhead costs.

One should understand the different operational dynamics and economics between different channels. The in-store expansion has challenges like difficult technical integration, resource-intensive (teaching the merchants), no data on purchase products, embarrassment for customers, etc.

However, the offline market opportunity was huge. Competitors like Affirm and Klarna were increasing their offline presence.

1.) How was Afterpay U.S. able to gain such a large following among young consumers in Australia?

The following are the decisions that were critical to the success of Afterpay U.S. in Australia:

Focus on millennials – Afterpay U.S. selected customers and vendors who were underserved. It helped the company create and tap into new value pools by enabling customers who had been unable to make purchases before.

It also enabled merchants to acquire customers who may otherwise have been inaccessible. In this, Afterpay consciously targeted non-consumption to enter the market.

Starting online – While this offered a smaller total addressable market than offline, it made integration with vendors easier and lowered barriers to customer education. Integration into vendor websites was automated and required minimum support.

Customers were easily able to find out information about Afterpay while on merchant websites online, were able to sign up easily on the Afterpay website, and were able to make decisions in the privacy of their homes.

Easy to use – Afterpay made the product easy to use for both vendors and customers. For customers, they did this through a simple signup process and automated payments.

Afterpay also had simple and transparent terms and conditions, a sharp contrast to the convoluted terms typical of the finance industry. This helped the company generate trust from wary customers.

For vendors, Afterpay was easy to integrate into most popular e-commerce builders such as Shopify and Wix and required few changes to their existing models.

No interest – Afterpay U.S. also chose to subsidize its demand side, i.e., retail customers, by charging them no interest, an appealing feature for its target demographic, which tended to be averse toward credit.

This also limited regulatory oversights, allowing Afterpay to fly under the radar and grow rapidly in its early years.

Choosing good partners – Afterpay’s decision to partner with “cool” brands that were already beloved by consumers created…