MultiChannel Retailing

By Thia Mullen and Jennifer Hill

Why are Retailers using Multiple
Channels to Interact with Customers?

 Customers want to interact in different ways

 Each Channel offers different benefits for Customers
 The retailers can also reach more customers by using
multiple channels
More reasons for becoming a
Multi-Channel Retailer
 Increase in Share of Wallet
 For 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
 Provide services more cost efficiently
 Leverage of Existing Assets
 Brand Name, Inventory, Customer Database
 Develop Insights in Customer Shopping Behavior
Dollars spent at different channels: Average
annual dollars spent by JCPenney customers
Why are Retailers using Multiple channels to
Interact with Customers?
Customers buy what they want,
When they want,
Whenever they want

customer
Store Channel

Benefits
o Browsing
o Touching and Feeling Products
o Personal Service
o Cash and Credit Payment
o Entertainment and Social Experience
o Immediate Gratification
o Risk Reduction
Catalog Channel

Benefits
 Convenience
 Safety
 Portability and easy access
Internet Channel

 Provides convenience offered by catalogs and other non-

store formats
 Compared with store and catalog channels, has potential
to offer greater selection of products
 More personalized information about products and
services in relatively short amount of time
 Unique opportunity to collect information about how
consumers shop
Internet Channel – Broader Selection

 Compared with the other two channels, vast number of

alternatives available to consumers
 Consumers can easily “visit” and select merchandise
from broader array of retailers
 Retail websites typically offer deeper assortments of
merchandise than are available in stores
 Enables them to satisfy consumer demand for less
popular styles, colors, or sizes and still keep overall
inventory costs low
Internet Channel – More Information
to Evaluate Merchandise

 Important service offered by retailers is provision of

information to help customers make better buying
decisions
 Depth of information at retailer’s website can provide
solutions to customer problems
 Retailers can provide as much information as each
customer wants
 More information than the customer could get through
store or catalog
More Information to Evaluate
Merchandise

 Information on an electronic channel database can be

frequently updated and always available
 Customers can format information so they can
effectively use it when evaluating products
 Virtual communities – networks of people who seek
information, products, services and communicate with
one another about specific issues
More Information to Evaluate
Merchandise

 Social shoppers – people who participate in virtual

communities
 Some social shoppers will may spend two or three times
amount of time traditional shoppers do
 May not make a purchase
 Experience of shopping they enjoy more than product or
service
More Information to Evaluate
Merchandise

 Many retailers have added ability for customers to post

reviews
 Provide valuable feedback to buyers about what is liked
or not liked
 Retailers ideally suited to offer problem-solving sites for
customers
 Have skills to put together merchandise assortments,
services, and information
Internet Channel – Personalization

 Potential benefit is ability to personalize information for

each customer economically
 Catalogs cannot tailor merchandise and information to
needs and preferences to individual customers
 Provide “personal” service at a low cost
Personalization –
Personalized Customer Service

 To improve customer service from an electronic channel,

many retailers offer live, online chats
 Online chat
 Economically attractive for retailers
 Cost is less than an email and 1/3 the cost of a phone
call
Personalization –
Personalized Offering

 Retailers can personalize offerings for each customer

 Customers can personalize web pages
 Retailers can personalize promotions
 Can test different promotions in real time
 If a 5% discount works better than $5 off, stay with
more successful promotion
Selling Merchandise
with “Touch-and-Feel” Attributes

 Due to problems of providing touch-and-feel information,

apparel retailers experience more return rates
 20% on purchases made through an electronic channel
 10% on purchases made in stores
“Touch-and-Feel” – Role of Brands

 Brands provide consistent experience

 Helps overcome difficulty of not being able to touch and
feel
 Because consumers trust familiar brands, name brands
sell successfully
 Not just through electronic channels, but also through
internet, catalogs, and TV home shopping
“Touch-and-Feel” – Using Technology

 Retailers using technology to convert touch-and-feel

information to look-and-see information
 Websites going beyond basic images and using 3D
imaging and/or zoom technology
 The use of image-enhancing technologies has increased
conversion rates and reduced returns
“Touch-and-Feel” – Using Technology

 To overcome limitations associated with trying on

clothing, apparel retailers started using virtual models
 Enable consumers to see selected merchandise looks on
an image with similar proportions
“Touch-and-Feel” – Gifts

 Some information in a store is not much better than the

information provided electronically
 Stores offering little benefit over an electronic channel in
terms of useful information provided about some
merchandise
 Buying gifts electronically offers benefit of saving time
and effort of packing and sending gifts
“Touch-and-Feel” – Services

 Some service retailers have been very successful over

the internet

 Look-and-see attributes of offering can be presented

very effectively online
Using the Internet to Improve
Multichannel Shopping Experience

 An electronic channel can provide valuable insights into

how and why customers shop
 Insights on if customers are dissatisfied or satisfied with
experiences
 Valuable information for assortment planning would be
customer willingness to substitute one brand for another
 Collecting data as customers navigate through a website
is easy
Perceived Risks in Electronic Shopping

 Two critical perceived risks

 Security of credit card transactions on the internet
 Almost all retailers use sophisticated technologies to encrypt
communications
 Potential privacy violations
 Consumers concerned about the ability of retailers to collect
information about:
 Purchase history
 Personal information
 Search behavior
Evolution Toward Multichannel
Retailing

 Four reasons traditional store-based and catalog retailers

are placing more emphasis on electronic channels
 Electronic channel gives opportunity to overcome limitations
of primary existing format
 Retailers can reach out to new markets
 Providing multichannel offering builds “share of wallet”
 Enables retailers to gain valuable insights into customers’
shopping behavior
Overcoming the Limitations of an
Existing Format

 Greatest constraints facing store-based retailers is size

of stores
 Amount of merchandise that can be displayed and
offered for sale in stores is limited
 By blending stores with internet-enabled kiosks, retailers
can expand assortment to customers
Overcoming the Limitations of an
Existing Format

 Another limitation is store-based retailers face is

inconsistent execution
 Knowledge and availability vary across stores and within
a store at different times during the day
 Difficult for retailers selling new, complex merchandise
Expanding Market Presence

 Electronic channel is attractive to firms with strong

brand names but limited locations and distribution
 Some retailers are widely known for offering unique,
high-quality merchandise, but require customers to
travel
Increasing Share of Wallet

 Offering an electronic channel may lead to some

cannibalization
 If used synergistically with other channels could result in
more total purchases from a retailer
 Traditional single-channel retailers can use one channel
to promote services offered by other channels
Increasing Share of Wallet

 A store’s website can be advertised on:

 In-store signs
 Shopping bags
 Credit card billing statements
 Point of sale receipts
 Print or broadcast advertising
 Physical stores and catalogs also advertisements
Increasing Share of Wallet

 Store-based retailers can leverage stores to lower cost of

fulfilling orders and processing returned merchandise
 Customers can be offered opportunity to pick up and
return merchandise at retailer’s stores
 Many retailers will waive shipping fees if customer picks
up merchandise in-store
Capabilities needed for
Multichannel Retailing
To effectively operate and realize the benefits of
multichannel retailing, firms need to have the skills to:
 Develop assortments and manage inventory
 Manage People in remote locations
 Efficiently distribute merchandise to stores
 Present merchandise effectively in a printed format and
distriubute catalogs
 Present merchandise effectively on a Web site
 Process orders from individual customers electronically
 Efficiently distribute merchandise to homes and accept returns
 Integrate information systems to provide a seamless customer
experience across channels
Who has these Critical Resources?
Capabilities for Multi-Channel Retailers
Resources Needed to Compete
Efficiently in Internet Retailing

 Easy to use website

 Management Information System
 Order Processing
 Customer database
 Personalization software
Resources Needed to Compete
Efficiently 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
Resources Needed to Compete
Efficiently 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 – personalized
Why did Internet Retailers Fail?

 Lack of Skills to Succeed in Internet Retailing

 Consumers Prefer Multi-Channel Retailers
Why did Internet Retailers Fail?

 They had skills in Web Design

 They had systems to manage transaction
 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
Catalog Retailers are ready for
internet retailing

 Ready to take orders

 Handling returned merchandise
 Able to deliver
 Extensive information about their customer –
personalization
 Database already in place
 Visual merchandise same online as in catalog
Why are store-based retailers
moving multi-channel retailers?

 Sales through an electronic channel are growing at over

20% per year
 Multi-channel retailers can attract more customers and
satisfy existing customers better
 The growth of sales in stores is declining
Impact of Internet Shopping on Stores Sales

$1,000
$800
$600
$400
$200
$0
1999 2000 2001 2002 2003 2004 2005
% 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
 Which Channel is the most Profitable?

Stores Electronic Retailers

■ Bricks and Mortar, Salespeople ■ Building, Refreshing Web Site
■ Attracting Customers to Store ■ Attracting Customers to Web Site:
■ Distribution Centers “Customer-Acquisition Costs” are
huge but “Customers’ switching
■ Restocking Returned
costs” are tiny.
Merchandise
■ Picking, Packing, Mailing Small
Orders to Home
■ Restocking Returned Merchandise
Will Manufacturers Bypass Retailers
and Sell Directly to Consumers?

 Advantages Retailers have over Manufacturers

 Retailers sell many brands allowing the customer more
variety
 Retailers distribute directly to the customer
 Retailers collect and use Information about Customers

Widespread Disintermediation is unlikely.

Issues in Multichannel Retailing

 Integrated Shopping Experience

 Communicate with customers anytime, anywhere
through multiple channels
 Intergrating legacy systems for seamless customer
interface
 Brand Image
 Maintain the same image to their customer accros all
channels
 Merchandise Assortment online and in store
 Pricing
Multichannel shopping
Illustration of Multichannel Integration
 Consumer
does not find Consumer
desired item in goes to
the store. kiosk to
search for
product
 Kiosk
links to
chain’s web-
site
allowing Consumer
consumers places order
to find and online for
purchase home
item delivery or
store pick-
up at a later
time
Source: Progressive Grocer, 01 Feb 00;
Grocery Headquarters, 01 Feb 00.
3-46
Opportunities to Enhance online
shopping

 Order online, Pick up at store

 Product available in store available on website
 Kiosk available in store to order items not available in
store
 Web sites features in store deals and
coupons/promotions
 Ad Circular available on website
Shopping in the Future

 Great advantage to have customer database shared by

all channels and integrated across all systems
 Sales associate and store systems able to offer superior
customer service based on the database
 Technology also supports retailer’s business model
 Promises to offer customers products and services which
would provide best shopping experience
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