Chapter 3Chapter 3Multichannel Retailing

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

The Multi-Channel RetailerThe Multi-Channel Retailer

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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Retailer

Digital Vision / Getty Images

Steve Cole/Getty Images

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

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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

Dollars spent at different channels:Dollars spent at different channels:

Average annual dollars spent by J.C. PennyAverage annual dollars spent by J.C. Penny’’s s

customerscustomers

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Benefits Provided by Benefits Provided by Different ChannelsDifferent Channels

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Unique Benefits Provided by Unique Benefits Provided by

Store ChannelStore Channel• Browsing• Touching and feeling• Personal service• Cash and credit payment • Entertainment and social interaction• Immediate gratification• Risk Reduction

3-6Royalty-Free/CORBIS

(c) Brand X Pictures/PunchStock

Benefits Provided by Benefits Provided by

Catalog ChannelCatalog Channel

ConvenienceInformation

Safety

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• $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?

Source: Forrester, State of Consumers and Technology, 2006

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

Virtual CommunitiesVirtual Communities

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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

Virtual CommunitiesVirtual Communities• Virtual community is a network of members sharing

common interests that interact with each other electronically.

• Examples:o IVillage – Womeno Pricegrabbers.com; Epinion.com–product

comparisons and reviewso Flypaper.com – talks about fashiono ThisNext.com, Kaboodle.com, Wists.com,

StyleHive.com – social shopping that combines shopping and social networking

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What People Buy Over the What People Buy Over the

InternetInternet

TravelPC/Electronics/ToysBooks/SoftwareApparelHome & GardenJewelry & Watches

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• “Look and See” attributes vs. “Touch and Feel” attributes (?)

• Degree to which information can be used to predict satisfaction prior to purchaseo Giftso Services

• Might not need to “Touch and Feel”o “Touch and Feel” not useful - Giftso Superior presentation of “Touch and Feel”o Branding

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What Merchandise Will Be Sold Successfully Through Electronic Channel?

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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?

How Can the Electronic Channel Overcome How Can the Electronic Channel Overcome

Limitations?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

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Technology increases conversion rates

My Virtual Model: Try It OnMy Virtual Model: Try It OnLink to My Virtual Model H & M

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How Can the Electronic Channel How Can the Electronic Channel

Overcome Limitations?Overcome Limitations?

GIFTS• Saves time• Saves effort in packing• Saves effort in delivery

SERVICES• No Shipping Problems• Examples

o Travel websiteso Bankingo Newspapers

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Janis Christie/Getty Images

The Electronic Channel Provides Superior Benefits for

How Can the Electronic Channel How Can the Electronic Channel

Overcome Limitations?Overcome Limitations?

• Use the Internet to Improve Multichannel shopping experience

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

o Store and website layout design tailored to customers’ buying habits

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Perceived Risks of Perceived Risks of

Electronic ShoppingElectronic 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

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Don Farrall/Getty Images

Evolution Toward Evolution Toward

Multichannel RetailingMultichannel Retailing

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

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

o With electronic channel, retailers can reach out to new markets

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

customers’ shopping behaviors

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Capabilities for Multi-Channel Capabilities for Multi-Channel

RetailingRetailing

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 Capabilities for

Multi-Channel RetailingMulti-Channel Retailing

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Why Did Internet Retail Why Did Internet Retail

Entrepreneurs Fail?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 Why did Electronic-only

Retailers Fail?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 3-24

Digital Vision/Getty Images

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

Catalog Retailers can Catalog Retailers can

Add Electronic Channel EasilyAdd 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

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Why are store-based retailers evolving Why are store-based retailers evolving

into multi-channel retailers?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 Impact of Internet Shopping

on Store Saleson Store Sales

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Ecommerce MythsEcommerce 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 Which Channel Is the

Most Profitable?Most Profitable?

Cost Drivers in Stores and Electronic RetailersCost Drivers in Stores and Electronic Retailers

• Bricks and Mortar, Salespeople

• Attracting Customers to Store

• Distribution Centers• Restocking Returned

Merchandise

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• 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

Will Manufacturers Bypass Retailers Will Manufacturers Bypass Retailers

and Sell Directly to Consumers?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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Widespread Disintermediation Unlikely

Issues in Multi-Channel RetailingIssues in Multi-Channel Retailing

• Integrated Shopping Experienceo Communicate with customers anytime,

anywhere through multiple channelso Website, Store, Kiosks, Handheld

Deviceso Integrating legacy systems for seamless

customer interface• Brand Image

o Consistent brand image across different channels

• Merchandise assortment offered in each channel

• Pricing across channels

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Customer

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

Channels Offer Channels Offer

Complementary BenefitsComplementary BenefitsStores 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 ShoppingMultichannel Shopping

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Illustration of Illustration of

Multi-Channel IntegrationMulti-Channel Integration

3-35Source: 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

Opportunities to Opportunities to

Enhance Multi-Channel ExperienceEnhance 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 Experience:Shopping Experience:

Personalization Potential Personalization Potential

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Integration – Key to Integration – Key to

Multi-Channel RetailingMulti-Channel Retailing

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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