Multi Channel Retailing

McGraw-Hill/IrwinRetailing Management, 7/e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 3

Multi-Channel Retailing

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The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior

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Questions

■ What are the unique customer benefits offered by the three retail channels – stores, catalogs, and the Internet?

■ Why are retailers moving toward using all three channels?

■ How do multichannel retailers provide more value to their customers?

■ What are the key success factors in multichannel retailing?

■ How might technology affect the future shopping experience?

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The Multi-Channel Retailer

Retailer

Digital Vision / Getty Images

Steve Cole/Getty Images

The McGraw-Hill Companies, Inc./Andrew Resek, photographer

A retailer that sells merchandise or service through more than one channel. By using a combination of channels, retailers can exploit the unique benefits provided by each channel.

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Why are Retailers Using Multiple Channels to Interact with Customers?

■ Customer wants to interact in different ways

■ Each channel offers a unique set of benefits for Customers

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Why are Retailers Using Multiple Channels

to Interact with Customers?

customer

Consumers buy what they want,When they want,Wherever they want

store kiosk catalog Call center Web/E-mail mobile

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More Reasons for Becoming a Multi-Channel Retailer

- Increase Share of Wallet

Example: Eddie Bauer, single-channel customers spend $100-$200

per year, dual-channel customers spend $300-$500 per year, tri-channel customers spend $800-$1000 per year

- Overcome Limitations of Existing Format - Expand Market - Provide services more cost-efficiently - Leverage Existing Assets

- Brand Name, Inventory, Customer Database

- Develop Insights in Customer Shopping Behavior

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Dollars spent at different channels:Average annual dollars spent by JCPenny’s customers

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Benefits Provided by Different Channels

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Unique Benefits Provided by Store Channel

■ Browsing■ Touching and feeling■ Personal service■ Cash and credit payment ■ Entertainment and social interaction■ Immediate gratification■ Risk Reduction

Royalty-Free/CORBIS

(c) Brand X Pictures/PunchStock

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Benefits Provided by Catalog Channel

Convenience

Information

Safety

Hoby Finn/Getty Images

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What’s the Big Deal About Shopping on the Internet?

■ $2.5 Trillion US Retail Sales

■ $200 Billion Catalog and Direct Sales

■ $ 4 Billion TV Home Shopping

■ $ 100 to 150 Billion Internet Retail Sales

■ Just a drop in the bucket, but growing fast!

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What’s the Big Deal About Shopping on the Internet?

Just 6% of total retail sales,

but is growing very fast (about 25% annually)

Furthermore, it has an important impact on other

channels

75% of US consumers say they sometimes get information or shop online prior to visiting a regular store 49% purchase from a different retailer offline than researched online 61% of US auto consumers use the Web to research their car purchases.

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Source: Forrester, State of Consumers and Technology, 2006

What’s the Big Deal About Shopping on the Internet?

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Impediments to Shopping On-Line

Technological concerns are becoming less important

Access to Internet Broadband Connections Privacy, Security concerns

Are the benefits of shopping on-line greater than the benefits of going to a store?

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Internet Channel

■ Broader Selection■ More and Better Information to Evaluate Merchandise

Drill Down as Much as You Want Full motion Video

■ Personalization Information is tailored to Individual consumers to help them

make quicker and better purchase decisions Fred is a Super Retail Salesperson Customized Information -- Side By Side Comparisons, Full

Motion Video Try It On Virtually

■ Information for Solving Problems, Not Just Merchandise Characteristics

Virtual Communities

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More and better information to evaluate merchandise

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Side-by-Side Comparison

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Personalized Customer Service

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Using an Agent to Locate Merchandise

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Problem Solution BenefitsOffered By Internet Channel

■ Bundling Information, Services, and Products

■ Examples iVillage The Wedding

Channel Garden.com

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Virtual Communities

People who seek information, products and services communicate with each other regarding specific issuesSocial shoppers: seek not just information but also an

enhanced emotional connection to others participants in the shopping experience

Royalty-Free/CORBIS

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Virtual Communities

■ Virtual community is a network of members sharing common interests that interact with each other electronically.

■ Examples: IVillage – Women Pricegrabbers.com; Epinion.com–product comparisons

and reviews Flypaper.com – talks about fashion ThisNext.com, Kaboodle.com, Wists.com, StyleHive.com

– social shopping that combines shopping and social networking

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Virtual communities

Source. Future Trends in Microelectronics and IT, IBM Research from http://www-05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectronics.pdf

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What People Buy Over the Internet

Travel

PC/Electronics/Toys

Books/Software

Apparel

Home & Garden

Jewelry & Watches

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What Merchandise Will Be Sold Successfully Through Electronic Channel?

■ “Look and See” attributes vs. “Touch and Feel” attributes (?)■ Degree to which information can be used to predict

satisfaction prior to purchase Gifts Services

■ Might not need to “Touch and Feel” “Touch and Feel” not useful - Gifts Superior presentation of “Touch and Feel” Branding

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How to Sell Over the Internet…and eliminate returns Branding:

National brands provide a consistent experience for customers to overcome not being able to touch and feel.

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

How Can the Electronic Channel Overcome Limitations?

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How Can the Electronic Channel Overcome Limitations?

Use technology to convert “touch and feel” information into “look and see” information

■ 3-D Imaging■ Zoom Technology■ Live Chat■ 360 Degree Viewing■ Virtual Models

conversion rates: % of consumers who buy the product after viewing it

Technology increases conversion rates

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My Virtual Model: Try It On

Link to My Virtual Model H & M

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GIFTS■ Saves time■ Saves effort in packing■ Saves effort in delivery

SERVICES■ No Shipping Problems■ Examples

Travel websites Banking Newspapers

Janis Christie/Getty Images

The Electronic Channel Provides Superior Benefits for

How Can the Electronic Channel Overcome Limitations?

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■ Use the Internet to Improve Multichannel shopping experience

Instantaneous and easy data collection on how and why customers shop, and how they’re dissatisfied or satisfied with their electronic shopping

Store and website layout design tailored to customers’ buying habits

How Can the Electronic Channel Overcome Limitations?

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Perceived Risks of Electronic Shopping

Security of credit card transaction – security problems have not arisen in actual usage

Potential privacy violations – consumers are concerned about retailers collecting their personal information

Don Farrall/Getty Images

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Evolution Toward Multichannel Retailing

■ Traditional store-based and catalog retailers are placing more emphasis on their electronic channels and evolving into multichannel retailers.

E-channel gives a way to overcome limitations of existing format

With electronic channel, retailers can reach out to new markets

Builds share of wallet E-channel enables retailers to give insights into

customers’ shopping behaviors

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Recreation Equipment Inc. (REI) – A Leader in Multichannel Retailing

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Overcoming Existing Format

Size of the store is the greatest constraint for stores■ By blending store with internet-enabled kiosks,

retailers expand assortments offered to shoppers.

Store based retailers face inconsistent execution■ Kiosks can be used by both sales associates and

customers for up-to-date product information, stock information and price reduction on clearances.

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Percentage of Cross Channel Shoppers

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Capabilities for Multi-Channel Retailing

To effectively operate and realize the benefits of multi-channel retailing, firms need to have skills in:

■ Developing assortments and managing inventory■ Managing employees in distant locations■ Distribute merchandise efficiently from DCs to stores■ Present merchandise in catalogs■ Present merchandise on websites■ Process orders electronically■ Efficient distribution of individual orders to homes■ Operate information systems for all channels

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Who Has These Critical Resources?Capabilities for Multi-Channel Retailing

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Resources Possessed by Different Firm Types

E Only Catalog Store-Based ManufacturersWebsite Systems Excellent Poor Poor PoorRetailing Skills Poor Good/Excel Excellent PoorFulfillment Poor Excellent Poor PoorBrand Reputation Poor Good/Excel Excellent Good/ExcelAssortments Good Good/Excel Excellent PoorCustomer Data Poor Excellent Good/Excel Poor

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Resources Possessed by Different Firm Types

E Only Catalog Store-Based ManufacturersWebsite Systems Excellent Poor Poor PoorRetailing Skills Poor Good/Excel Excellent PoorFulfillment Poor Excellent Poor PoorBrand Reputation Poor Good/Excel Excellent Good/ExcelAssortments Good Good/Excel Excellent PoorCustomer Data Poor Excellent Good/Excel Poor

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Resources Possessed by Different Firm Types

E Only Catalog Store-Based ManufacturersWebsite Systems Excellent Poor Poor PoorRetailing Skills Poor Good/Excel Excellent PoorFulfillment Poor Excellent Poor PoorBrand Reputation Poor Good/Excel Excellent Good/ExcelAssortments Good Good/Excel Excellent PoorCustomer Data Poor Excellent Good/Excel Poor

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Resources Possessed by Different Firm Types

E Only Catalog Store-Based ManufacturersWebsite Systems Excellent Poor Poor PoorRetailing Skills Poor Good/Excel Excellent PoorFulfillment Poor Excellent Poor PoorBrand Reputation Poor Good/Excel Excellent Good/ExcelAssortments Good Good/Excel Excellent PoorCustomer Data Poor Excellent Good/Excel Poor

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Resources Needed to Compete Effectively in Internet Retailing

■ Exciting and easy to use the website■ Management Information Systems

Order processing and status Customer database Personalization software

But these resources were not enough!

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Resources Needed to Compete Effectively in Internet Retailing

■ Retailing Skills Managing inventory Editing assortment

■ Efficient Fulfillment Systems Significant costs - last mile Picking and packing individual orders Handling returns - reverse distribution

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Resources Needed to Compete Effectively in Internet Retailing

■ Strong Brand Name and Image Build traffic Reduce customer perceived risk

■ Complementary Merchandise One stop shopping Lower shipping costs

■ Availability of Customer Information Tailored presentations - personalization

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Why Did Internet Retail Entrepreneurs Fail?

■ Lack of Skills to Succeed in Internet Retailing■ Consumers Prefer Multi-Channel Retailers

(Bricks and Clicks)

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Why did Electronic-only Retailers Fail?

■ They did not have skills in brand recognition

■ They did not have skills necessary to build consumer trust

■ They did not have skills to build assortments, manage inventory and fulfill small orders to homes

■ They did not posses sufficient resources to evolve into multichannel retailers

Digital Vision/Getty Images

They had skills in web designThey had skills in systems to manage transactions

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Catalog Retailers can Add Electronic Channel Easily

■ Ready to take orders■ Able to pack merchandise■ Able to deliver■ Able to handle returned

merchandise■ Already have a database■ Visual merchandise for catalog

is the same for electronic

Steve Cole/Getty Images

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Why are store-based retailers evolving into multi-channel retailers?

■ Sales through an electronic channel are growing at over 20% per year

■ Adding an electronic channel creates immediate possession utility

■ Multi-channel retailers can attract more customers and satisfy existing customers better

■ The growth of sales in stores is declining

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Impact of Internet Shopping on Store Sales

$0

$200

$400

$600

$800

$1,000

% of US Spending 5% 8% 10% 13% 17% 20% 24%

Online Spending $18 $29 $45 $68 $106 $152 $199

Web-Influenced $135 $207 $269 $348 $441 $540 $632

1999 2000 2001 2002 2003 2004 2005

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Ecommerce Myths

■ Low Cost of Entry

■ Overestimate Importance of Technology, Under Estimated Need for Traditional Resources

■ First Mover Wins

■ Gets Rid of the Middleman

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Which Channel Is the Most Profitable?Cost Drivers in Stores and Electronic Retailers

■ Bricks and Mortar, Salespeople■ Attracting Customers to Store■ Distribution Centers■ Restocking Returned

Merchandise

■ Building,Refreshing Web Site■ Attracting Customers to Web

Site: “Customer-Acquisition Costs” are huge but “Customers’ switching costs” are tiny.

■ Picking, Packing, Mailing Small Orders to Home

■ Restocking Returned Merchandise

Stores Electronic Retailers

Few e-tailers are profitable

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Will Electronic Channel’s Low Search Cost Increase Price Competition?

■ Conventional Wisdom Greater Comparison Shopping Offerings Easily Compared on Price Lower Search Costs => More Emphasis on

Price■ Empirical Evidence

Substantial Price Dispersion Lower Search Costs for Quality Information=>

Less Price Sensitivity Lower Search Costs Lead to Better Decisions

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Widespread Disintermediation Unlikely

Will Manufacturers Bypass Retailers and Sell Directly to Consumers?

Advantages of Retailers vs. Manufacturers

■ Distribute Merchandise Directly to Customers

■ Provide Assortments■ Collect and Use Information

about Customers

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Issues in Multi-Channel Retailing

■ Integrated Shopping Experience Communicate with customers anytime,

anywhere through multiple channels Website, Store, Kiosks, Handheld Devices Integrating legacy systems for seamless

customer interface■ Brand Image

Consistent brand image across different channels

■ Merchandise assortment offered in each channel■ Pricing across channels

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Customer

Today’s empowered consumers live in a multi-channel world – research products online, buy offline, and demand service everywhere

Web & Email • 24x7 • Visual

Call Center • Convenient • Immediate

Kiosks • Visual • Convenient

Handheld Devices • Immediate • 24x7

Brick & Mortar • Touch/Feel • Experience driven

Consumers buy what they want, when they want, wherever they want

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Channels Offer Complementary Benefits

Stores Internet Catalog

■Known Entity

■Entertaining/ Social Experience

■Easy Checkout and Returns

■Personal Assistance

■Product Trial- Complementary Merchandise

■Immediate Gratification

■Location Convenience

■Speed

■Greater Selection

■Personalized Presentation

■Community

■Portability

■High Quality Visual Presentation

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Multichannel Shopping

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Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00.

Consumer does not find desired item in the store.

Consumer goes to kiosk to search for product

Kiosk links to chain’s web-site allowing consumers to find and purchase item

Consumer places order online for home delivery or store pick-up at a later time

Illustration of Multi-Channel Integration

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Opportunities to Enhance Multi-Channel Experience

■ Order on Internet, Pick-Up in Store■ Promote Web Site on Receipts, Shopping Bags■ Product Availability in Stores Available on Website■ Kiosk in Stores to Order Merchandise Not Available in

Stores■ Plan Purchases (Shopping List) on Website■ In-Store Events Promoted on Website■ Ad Curricular on Website

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Shopping in the Future

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Shopping Experience:Personalization Potential

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Integration – Key to Multi-Channel Retailing

Create a Seamless Experience

Make it Easy Provide Support

Know thy Customer

• Ordering • Returns• Refunds

• Call Center• Shopping

Advice• Customer

Service

• Needs andpreferences

• One to OneMarketing

• Synchronized &consistent serviceregardlessof channel

Shopping Experience