Chapter 03

Chapter 3Multi-Channel Retailing

The World of RetailingIntroduction to RetailingTypes of RetailersMulti-Channel RetailingCustomer Buying Behavior

The Multi-Channel RetailerRetailerDigital Vision / Getty Images Steve Cole/Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer

Why are Retailers Using Multiple Channels to Interact with Customers?Customer Want to interact in different ways

Each channel offers a unique set of benefits for Customers

Benefits Provided by Different Channels

Unique Benefits Provided by Store ChannelBrowsingTouch and feel productsPersonal serviceCash payment Immediate gratificationEntertainment and social interactionRisk ReductionRoyalty-Free/CORBIS (c) Brand X Pictures/PunchStock

Benefits Provided by Catalog ChannelConveniencePortability, easily accessible Visual presentation SafetyHoby Finn/Getty Images

Unique Benefits Provided by Internet ChannelConvenienceSafetyBroad selectionDetailed informationPersonalizationVirtual communitiesProblem-solving information More info to evaluate merchandiseThe McGraw-Hill Companies, Inc./Jill Braaten, photographer

Problem Solution BenefitsOffered By Electronic ChannelBundling Information, Services, and ProductsExamplesiVillageThe Wedding Channel, The Knot

Virtual CommunitiesPeople who seek information, products and services communicate with each other regarding specific issuesRoyalty-Free/CORBIS

Virtual CommunitiesVirtual community is a network of members sharing common interests that interact with each other electronically.Examples:IVillage - WomenGarden.Com - GardenersFlypaper.com talks about fashionCafeutne.org social issues

Personalization Potential Of Electronic Channel

Customization BenefitsOffered By Electronic ChannelInformation Tailored to Individual Consumers to Help Them Make Quicker and Better Purchase DecisionsFred is a Super Retail SalespersonCustomized Information -- Side By Side Comparisons, Full Motion Video

Does The Electronic Channel Have Lower Costs Than Stores?StoresBricks and Mortar, SalespeopleAttracting Customers to StoreDistribution CentersRestocking Returned Merchandise

Electronic RetailersBuilding,Refreshing Web SiteAttracting Customers to Web SitePicking, Packing, Mailing Small Orders to HomeRestocking Returned Merchandise

Will Electronic Channels Low Search Cost Increase Price Competition?Conventional WisdomGreater Comparison Shopping Offerings Easily Compared on PriceLower Search Costs => More Emphasis on PriceEmpirical EvidenceSubstantial Price DispersionLower Search Costs for Quality Information=> Less Price SensitivityLower Search Costs Lead to Better Decisions

What People Buy Over the Internet

TravelPC/Electronics/ToysBooks/SoftwareApparelHome & GardenJewelry & Watches

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 purchaseGiftsServicesMight not need to Touch and FeelTouch and Feel not useful - Gifts Superior presentation of Touch and Feel Branding

Types of AttributesSearch: Can be determined prior to purchase, consumption. (e.g., price, brand)Experience: Cannot determine prior to purchase, consumption. (e.g., taste, comfort)Credence: Cannot be directly determined by the average consumer. (e.g., health benefits, technical specifications)

How to Sell Over the Internetand eliminate returns Even when retailers provide touch and feel information retailers still experience 10% returns of purchases 20% on the electronic channel.

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? Use technology to convert touch and feel information into look and see information

3-D Imaging Zoom Technology Live Chat 360 Degree Viewing Virtual ModelsTechnology increases sales

Perceived Risks of Electronic ShoppingSecurity of credit card transaction security problems have not arisen in actual usage

Potential privacy violations consumers are concerned about retailers collecting their personal informationDon Farrall/Getty Images

When The Electronic Channel Provides Superior BenefitsGIFTSSaves timeSaves effort in packingSaves effort in deliverySERVICESNo Shipping ProblemsExamplesTravel websitesBankingNewspapersJanis Christie/Getty Images

Resources Needed to Compete Effectively in Internet RetailingExciting, Easy to Use Web SiteManagement Information SystemsOrder processing and statusCustomer databasePersonalization software

But These Resources Were Not Enough!

Resources Needed to Compete Effectively in Internet RetailingRetailing SkillsManaging inventoryEditing assortmentEfficient Fulfillment SystemsSignificant costs - last milePicking and packing individual ordersHandling returns - reverse distribution

Resources Needed to Compete Effectively in Internet RetailingStrong Brand Name and Image Build traffic Reduce customer perceived riskComplementary MerchandiseOne stop shoppingLower shipping costs Availability of Customer InformationTailored presentations - personalization

Resources Possessed by Different Firm Types

Why did Electronic-only Retailers Fail?They did not have skills in brand recognitionThey did not have skills necessary to build consumer trustThey did not have skills to build assortments, manage inventory and fulfill small orders to homesDigital Vision/Getty Images They had skills in web designThey had skills in systems to manage transactions

Resources Possessed by Different Firm Types

Sheet1

E OnlyCatalogStore-BasedManufacturers

Website SystemsExcellentPoorPoorPoor

Retailing SkillsPoorGood/ExcelExcellentPoor

FulfillmentPoorExcellentPoorPoor

Brand ReputationPoorGood/ExcelExcellentGood/Excel

AssortmentsGoodGood/ExcelExcellentPoor

Customer DataPoorExcellentGood/ExcelPoor

Sheet2

Sheet3

Catalog Retailers can Add Electronic Channel EasilyReady to take ordersAble to pack merchandiseAble to deliverAble to handle returned merchandiseAlready have a databaseVisual merchandise for catalog is the same for electronicSteve Cole/Getty Images

Resources Possessed by Different Firm Types

Sheet1

E OnlyCatalogStore-BasedManufacturers

Website SystemsExcellentPoorPoorPoor

Retailing SkillsPoorGood/ExcelExcellentPoor

FulfillmentPoorExcellentPoorPoor

Brand ReputationPoorGood/ExcelExcellentGood/Excel

AssortmentsGoodGood/ExcelExcellentPoor

Customer DataPoorExcellentGood/ExcelPoor

Sheet2

Sheet3

Store-based Retailers vs. Electronic Retail EntrepreneursKnowledge of RetailingAssortment PlanningDistribution SystemsReputationCustomer DatabaseConvenient Location for Picking Up, Returning Merchandise, Warranty Service and InstallationVendor RelationshipsRoyalty-Free/CORBIS

Why did Walgreens Beat Out The Electronic Drugstore Chains?Three thousand conveniently located stores in the US with drive-through windows for picking up prescriptions and merchandiseA distribution system in place for picking, packing and shipping prescription pharmaceuticals and merchandise presently ordered by phoneA strong brand reputation for being trustworthy and helping customers on health-related decisionsAgreements in places with third-party payers (HMOs and insurance companies) to accept and provide pharmaceutical benefits for its customers

Resources Possessed by Different Firm Types

Sheet1

E OnlyCatalogStore-BasedManufacturers

Website SystemsExcellentPoorPoorPoor

Retailing SkillsPoorGood/ExcelExcellentPoor

FulfillmentPoorExcellentPoorPoor

Brand ReputationPoorGood/ExcelExcellentGood/Excel

AssortmentsGoodGood/ExcelExcellentPoor

Customer DataPoorExcellentGood/ExcelPoor

Sheet2

Sheet3

Advantages of Retailers vs. ManufacturersDistribute Merchandise Directly to CustomersProvide AssortmentsCollect and Use Information about CustomersWidespread Disintermediation Unlikely

Ecommerce MythsLow Cost of EntryOverestimate Importance of Technology, Under Estimated Need for Traditional ResourcesFirst Mover WinsGets Rid of the Middleman

Evolution Toward Multi-channel RetailingElectronic channel gives a way to overcome limitations of existing formatWith electronic channel, retailers can reach out to new marketsBuilds share of walletE-channel enables retailers to give insights into customers shopping behaviors

Overcoming Existing Format

Size of the store is the greatest constraint for storesBy blending store with internet-enabled kiosks, retailers expand assortments offered to shoppers.

Store based retailers face inconsistent executionKiosks can be used by both sales associates and customers for up-to-date product information, stock information and price reduction on clearances.

Percentage of Cross Channel Shoppers

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 inventoryManaging employees in distant locationsDistribute merchandise efficiently from DCs to storesPresent merchandise in catalogsPresent merchandise on websitesProcess orders electronicallyEfficient distribution of individual orders to homesOperate information systems for all channels

Capabilities for Multi-Channel Retailing

Multi-channel Services and Features

Issues Confronting a Multi-Channel RetailerMaintaining Brand Image Across ChannelsMerchandise Assortment Offered in Each ChannelPricing Across Channels

Shopping in the Future

Integration Key to Multi-Channel Retailing

11What are the benefits consumers get from shopping on the net? First convenience and security -- but all non store retail format offer this. Second, consumers can shop the world from their homes and see a lot more alternatives. But this is really not that great a benefit. Its like giving a buyer more data in computer print out. The benefit is converting the data into a limited amount of information that the consumer or manager can use. The internet in conjunctions with agents like FRED has the capability of doing this conversion of data into information better than other retail formats.

If Fred was a retailers agent, he would be like my aunt molly.Bonwit Teller, designer dress salon in Clevelend. Knew the what each for her clients wanted to hide and show off, what colors and styles, like. New shipment came in take to their home.

Another example would be providing consumers with Consumer Report like side by side comparisons. But the rows in the table would be the attributes important ot the specific consumer and the columns would be items consideredConclusion internet can provide important benefits11What are the benefits consumers get from shopping on the net? First convenience and security -- but all non store retail format offer this. Second, consumers can shop the world from their homes and see a lot more alternatives. But this is really not that great a benefit. Its like giving a buyer more data in computer print out. The benefit is converting the data into a limited amount of information that the consumer or manager can use. The internet in conjunctions with agents like FRED has the capability of doing this conversion of data into information better than other retail formats.

If Fred was a retailers agent, he would be like my aunt molly.Bonwit Teller, designer dress salon in Clevelend. Knew the what each for her clients wanted to hide and show off, what colors and styles, like. New shipment came in take to their home.

Another example would be providing consumers with Consumer Report like side by side comparisons. But the rows in the table would be the attributes important ot the specific consumer and the columns would be items consideredConclusion internet can provide important benefits