Chapter 3

Multi-Channel Retailing

McGraw-Hill/Irwin
Retailing Management, 6/e Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
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The World of Retailing

Introduction to Retailing Types of Retailers

Customer Buying
Multi-Channel Retailing
Behavior
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The Multi-Channel Retailer

Steve Cole/Getty Images

Retailer

Digital Vision / Getty Images

The McGraw-Hill Companies,

Inc./Andrew Resek, photographer
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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
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Benefits Provided by Different Channels

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Unique Benefits Provided by Store Channel

• Browsing
• Touch and feel products
• Personal service
• Cash payment
• Immediate gratification (c) Brand X Pictures/PunchStock

• Entertainment and social

interaction
• Risk Reduction
Royalty-Free/CORBIS
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Benefits Provided by Catalog Channel

Convenience
Portability, easily accessible
Visual presentation
Safety

Hoby Finn/Getty Images

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Unique Benefits Provided by Internet Channel

Convenience
Safety
Broad selection
Detailed information
Personalization
The McGraw-Hill Companies, Inc./Jill Braaten, photographer

Virtual communities
Problem-solving information
More info to evaluate merchandise
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Problem Solution Benefits

Offered By Electronic Channel

• Bundling Information, Services, and

Products
• Examples
– iVillage
– The Wedding Channel, The Knot
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Virtual Communities
People who seek information, products and
services communicate with each other regarding
specific issues

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
– Garden.Com - Gardeners
– Flypaper.com – talks about fashion
– Cafeutne.org – social issues
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Personalization Potential
Of Electronic Channel
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Customization Benefits
Offered By Electronic Channel

• Information 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
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Does The Electronic Channel Have Lower Costs

Than Stores?

Stores Electronic Retailers

• Bricks and Mortar, • Building,Refreshing
Salespeople Web Site
• Attracting Customers • Attracting Customers to
to Store Web Site
• Distribution Centers • Picking, Packing,
• Restocking Returned Mailing Small Orders to
Merchandise Home
• Restocking Returned
Merchandise
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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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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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Types of Attributes

 Search: 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)
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How to Sell Over the Internet

…and 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

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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 Technology increases sales
Live Chat
360 Degree Viewing
Virtual Models
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Perceived Risks of Electronic Shopping

Don Farrall/Getty Images

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
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When The Electronic Channel Provides Superior

Benefits
GIFTS
• Saves time
• Saves effort in packing
• Saves effort in delivery
SERVICES
• No Shipping Problems
• Examples
– Travel websites
– Banking
– Newspapers Janis Christie/Getty Images
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Resources Needed to Compete
Effectively in Internet Retailing

• Exciting, Easy to Use Web Site

• 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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Resources Possessed by Different Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
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Why did Electronic-only Retailers Fail?

They had skills in web design

They had skills in systems to manage transactions

• 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 Digital Vision/Getty Images

and fulfill small orders to homes

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Resources Possessed by Different Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
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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 Steve Cole/Getty Images

electronic
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Resources Possessed by Different Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
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Store-based Retailers vs.

Electronic Retail Entrepreneurs

• Knowledge of Retailing
– Assortment Planning
– Distribution Systems
• Reputation
• Customer Database Royalty-Free/CORBIS

• Convenient Location for Picking Up, Returning

Merchandise, Warranty Service and Installation
• Vendor Relationships
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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 merchandise
• A distribution system in place for picking, packing
and shipping prescription pharmaceuticals and
merchandise presently ordered by phone
• A strong brand reputation for being trustworthy and
helping customers on health-related decisions
• Agreements in places with third-party payers
(HMOs and insurance companies) to accept and
provide pharmaceutical benefits for its customers
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Resources Possessed by Different Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
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Advantages of Retailers
vs. Manufacturers

Distribute Merchandise Directly to Customers

Provide Assortments
Collect and Use Information about Customers

Widespread Disintermediation Unlikely

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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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Evolution Toward Multi-channel Retailing

• Electronic 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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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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Capabilities for Multi-Channel Retailing

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Multi-channel Services and Features

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Issues Confronting a Multi-Channel Retailer

• Maintaining Brand Image Across

Channels
• Merchandise Assortment Offered in Each
Channel
• Pricing Across Channels
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Shopping in the Future

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Integration – Key to Multi-Channel Retailing

Create a Seamless Know thy

Experience Customer
• Synchronized & • Needs and
consistent service preferences
regardless • One to One
of channel Marketing

• Call Center
• Shopping
• Ordering Advice
• Returns • Customer
• Refunds Service
Make it Easy Provide Support